Business System of the Franchise

Beginning a new franchise can be extremely challenging, making the professional advice of a franchise lawyer invaluable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

The Business System is the heart and soul of what a franchisee is buying, as it consists of the proprietary knowledge, processes, and standards that the franchisor has developed and refined to create a successful, recognizable business. The business system is in essence meant to be a complete blueprint for how to run the business, which is intended to provide considerable value, commercial synergies and a competitive advantage.

A. The Right to Use Intellectual Property

This is the most fundamental part of the business system. The franchisee is granted the right to use the franchisor's:

• Trademarks and Trade Names: The brand name, logo, and other visual identity elements that are central to customer recognition (e.g., the golden arches of McDonald's or the orange roof of Home Depot).

• Proprietary Information: This includes trade secrets, confidential recipes, special formulas, and other know-how that is essential to the business.

B. The Operations Manual

This is the "bible" of the franchise system. It's a comprehensive document that dictates how every aspect of the business should be run, from opening to closing. It typically covers:

• Operating Procedures: Detailed instructions for daily operations, including customer service standards, product preparation, and store maintenance.

• Quality Control: Standards for ingredients, supplies, and finished products to ensure consistency across all locations.

• Human Resources: Guidelines for hiring, training, and managing employees.

• Technology and Systems: Instructions for using the point-of-sale (POS) system, inventory management software, and any other proprietary technology.

C. Training and Ongoing Support

A key benefit of a franchise is the support provided by the franchisor. The business system includes:

• Initial Training: A mandatory training program for new franchisees and their management team, covering everything from operational procedures to marketing and financial management.

• Ongoing Assistance: Continued support through field visits, phone support, regional meetings, and newsletters to help franchisees stay updated and address any challenges.

D. Marketing and Advertising

The business system also includes a coordinated marketing strategy. Franchisees contribute to a collective advertising fund (in addition to their ongoing royalties) to fund system-wide marketing campaigns. This includes:

• National and Regional Advertising: Large-scale campaigns that build brand awareness and attract customers on a wider scale.

• Local Marketing: Guidelines and materials for a franchisee's local advertising efforts, ensuring brand consistency.

E. Supply Chain and Sourcing

Franchisors often leverage their collective buying power to negotiate better prices with suppliers. The business system dictates what products and services can be purchased and often from whom. This ensures consistency and quality control. The franchise agreement will outline:

• Approved Suppliers: A list of vendors from whom franchisees must purchase certain products or materials.

• Centralized Purchasing: In some systems, a franchisee must purchase all their products directly from the franchisor or its designated suppliers.

Before investing in any franchise, it is crucial to carefully review the Franchise Disclosure Document. The franchise disclosure document (and reiterated in the franchise agreement), which is a legal requirement in many Canadian provinces, provides a detailed breakdown of all fees, including initial costs, ongoing royalties, and other charges, as well as the particulars of the business system that is the foundation upon which the franchise operates.

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of the franchise business, together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.

The Basics to Becoming a Franchisee: Embarking on the path of becoming a successful franchisee demands an incredible amount of time and effort, given that there are only a limited number of truly successful franchisees, with those that have set themselves apart and hit the pinnacle of franchise operations and profitability. This begins with understanding the core concepts of a business franchise. Read more.

 

Key Aspects of a Franchise Disclosure Document: A Franchise Disclosure Document is a crucial legal document in Canada that provides a prospective franchisee with essential information about a franchise system. The franchise disclosure document is intended to help the potential franchisee make an informed investment decision. Read more.

 

Key Aspects of a Franchise Agreement: A franchise agreement is a legally binding contract that governs the relationship between a franchisor and a franchisee, which is drafted strongly in favour of the franchisor (as they are in a position to heavily dictate the franchise arrangement that they offer to prospective franchisees). While the specifics can vary, there are several key aspects that are almost always included. Read more.

 

Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.