Does a Franchise Have to Follow Corporate Policy?

Owning a franchise involves operating your own business while adhering to the corporate policies established by the firm that sold the franchise rights to you. Before buying a franchise, review the franchise agreement. This legal document spells out the rights and responsibilities of franchise ownership. It is customary for the franchisor to include any material corporate policy guidelines in this agreement.

As reported by the International Franchise Association, franchisees account for about four percent of U.S. businesses. Two major reasons for franchise ownership include brand name popularity and business management assistance. Buying a franchise enables you to own and operate a company offering a well-known product or service. The franchisor will help you to get started by providing a successful business model and ongoing help for operating your franchise. However, you are expected to follow corporate policies and fulfill other obligations, which usually are detailed in the franchise agreement.

If you are considering investing in a franchise, review the franchise agreement with your legal adviser. In addition to defining your rights as a franchise owner, this document should cover any corporate policies that must be observed by the franchise operator. The franchise agreement often will include any financial and legal penalties that might be imposed if corporate policy guidelines are not followed.

One of the primary responsibilities of a franchise owner is to observe corporate operating policies established by the franchisor. These will include specific guidelines about such issues as marketing, product and service offerings, operating hours and employee uniforms. As a franchise operator, you need to comply with local ordinances and taxation requirements of all governmental jurisdictions. As with any small business, you also are responsible for maintaining a safe working environment for employees and keeping adequate financial records.

Corporate policies defined in a franchise agreement and other business communications often serve several purposes. A primary goal is to produce an effective business plan for a profitable franchise. Another important goal is to ensure that franchisees know what is expected in daily operations of the franchise. A franchisor is involved in a business partnership with their franchisees, so corporate franchise policies are usually intended to communicate guidelines that are consistently-applied among all of the business partners. If you are thinking about buying and operating a franchise, engage in a due diligence review of corporate policies prior to finalizing your franchise agreement and purchase.