Each party involved in the sale and operation has specific duties, and this includes the franchisee. All of the franchisee's responsibilities have to do with the successful operation of the business, assuring it maintains national standards and is financially viable and profitable in the long run. The franchise is a national brand, and it relies on the quality of product or service provided at each individual franchise to maintain that brand.
#1 Financial Responsibilities
The foremost responsibility the franchisee bears is to financially support the business. This includes the initial set-up cost to purchase the franchise, lease a retail space where applicable and purchase marketing and support materials from the franchise at large. When applying, a franchisee will be asked to provide proof he or she can meet the financial role of owning a business.
#2 Dedication of Time and Resources
A franchisee is a business owner. He or she is expected to be present at the business, particularly in its infancy. An individual who wants to take a passive role in owning a business may not be the best person for this role. Rather, this type of individual is suited to be an investor. The franchisee will be busy, and he or she is expected to look for new opportunities to grow the business.
#3 Partnership with the National Brand
The national brand should be reflected in every aspect of the business. The franchisee will be given a business plan and will receive specific rules and regulations for operating. The franchisee should not only apply these standards in the business. He or she should also look for ways to improve upon them. The most successful franchisees will be awarded more than one franchise, and they will receive these opportunities by helping improve the national success of the franchise as a whole.
#4 Communication with the Franchise
Communicating needs, concerns and problems with the franchise is essential to fulfilling a role as a franchisee. The franchise may require regular profit and expense reporting. It may further implement new rules, such as changes in pricing of final or raw materials. The franchisee will have the role of testing these policies to determine if they are successful and reporting back to the franchise. An individual who does not want to be responsible to a supervisor in this manner may want to consider opening his or her own business rather than a franchise.
#5 Maintenance of Standards and Ethics
The final and last critical piece of the franchisee's responsibilities is to maintain the quality standards set on a national level. It is possible for the franchise to disenfranchise a franchisee who fails to maintain national standards. This includes preserving branding such as the logo and colors, and it may apply to even the small details such as presentation of the final product. An individual patron should be able to visit any franchise in a chain and have an immediate sense of similarity throughout the entire region or country, and it is up to each franchisee to provide this environment.
Does a franchisee have limited liability?
A franchisee's liability will rely on the corporate structure of the franchise and of the individual chain he or she owns. On the national level, most franchises are limited liability companies or corporations, immediately removing liability from any one individual. At each location, a franchisee must set up a business with its own licensing. For example, a franchise of John's Burgers may be called "The Los Angeles Series of John's Burgers." This individual business may also be incorporated into an LLC or a corporation, further limiting the franchisee's liability in the operation.
Does a franchisee have to pay himself?
As the owner of a franchise, a franchisee does not take a direct payment from the operation of the business itself. Instead, the franchisee is involved in a profit sharing arrangement with the franchise and his or her location. The franchisee takes home a portion of gross receipts from the franchise if it is profitable. The franchisee may also be eligible for profit sharing on the larger scale, collecting income when the franchise as a whole is profitable. However, each franchise has its own regulations for these models, and a franchisee should pay close attention to the profit model before purchasing a franchise.
How can I tell whether a restaurant is operated by the franchisor or franchisee?
The best way to tell whether a restaurant is operated by a franchisor or a franchisee is to look at its documents of incorporation. These may be made public depending on the state where the franchise exists. If you cannot find these documents, you may consider looking at the website for the location of the franchise you are considering. The website may have information about the individual franchisee. Finally, if you cannot find this information from one of these resources, the best way to find out who owns the restaurant is to ask. Most franchisees are proud business owners and will immediately let you know if they own and operate the franchise themselves.