Franchise Management For Dummies. Mazero Joyce

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      Think of a joint venture as a form of partnership between a franchisor and a franchisee. Different from a standard franchisor-franchisee relationship, generally each party contributes assets to the joint venture, and each shares in the profits and losses of the entity they form. What each party contributes will vary greatly from one joint-venture relationship to another.

      In a simple joint-venture relationship found in franchising, the franchisor identifies a strong operator as its joint-venture partner. The franchisee and the franchisor (the franchisor usually establishes a subsidiary or separate entity for this purpose) form a joint-venture entity, and that entity signs a franchise agreement with the franchisor. The franchisee participant operates the franchise for the joint venture and earns a separate fee for doing so. The franchise agreement is a standard agreement, and generally the fees and obligations are the same as with any other franchisee.

      The joint-venture agreement will also define the rights and obligations of each party as you would find in any partnership agreement. Common elements would include limitations or restrictions on the franchisee joint-venture partner to dispose of certain assets, acquire debt, or take other specified actions. Formulas or methods are also included to allow for cross defaults and, most importantly, how to unravel the relationship, should that be required.

      Several franchisors have used joint-venture relationships both in the United States and as part of their international expansion, but it is not a common structure because it is complicated, somewhat difficult to manage, and creates difficulties should the relationship need to be terminated and unwound.

      Most modern franchise systems will establish at some point a franchisee advisory council (FAC). Whether elected by the franchisees in the system or appointed by the franchisor, the purpose of the FAC is to be a sounding board for the franchisor. Although the FAC doesn’t have any decision-making powers, it’s an important part of most franchisors’ processes for evaluating changes to the system, recommending improvements to the system, and testing new ideas by obtaining the input of operating franchisees.

      Associations, cooperatives, and buying groups are different. These groups are generally formed either independently by franchisees or in conjunction with the franchisor and may be separate legal entities.

      Historically, franchisee associations were created when some event occurred that put the franchisees and the franchisor at odds with each other. In most instances the franchisees would join the association and pay dues. Generally, the first hire of the franchisee association would be an attorney to represent the association in discussions or litigation with the franchisor. Franchisee associations were therefore not looked upon fondly by franchisors – were seen as sort of a franchisee union – and the nature of the relationship was often contentious. As franchising has matured, many franchisors have established beneficial relationships with franchisee associations, although most franchisors still prefer to work through their FAC and not through a franchisee association.

      A buying group or cooperative is established to provide cost savings opportunities for participating franchisees by fully exploiting the buying power of the many franchisees operating in a franchise system. Typically, the buying group or purchasing cooperative negotiates supplier arrangements and facilitates its members’ purchases on uniform pricing and delivery terms.

      Reliance on buying groups and cooperatives is especially common in the food sector, but they exist across all industries. A well-managed buying entity will ordinarily generate significant cost savings, and for that reason franchise systems that embrace these groups often enjoy a competitive advantage.

      

It is important to understand that franchisees who participate in these groups are still required to follow the franchisor’s brand standards and specifications. For this reason, franchisors often exercise significant influence over quality and other standards applicable to selection of products and the suppliers themselves. Some franchisors even participate directly in the groups, to better service the franchisor’s corporate (non-franchised) locations. For more on buying groups and cooperatives, see Chapter 9.

      

On occasion, franchisors make company-owned locations available for sale to franchisees. This is called either retrofranchising (locations that have never been franchised) or refranchising (locations that once were franchised but were acquired and operated by the franchisor). For all practical purposes, for franchisees looking to invest in established businesses, they are the same.

      Franchisors have many reasons for wanting to sell company-owned locations:

      Acquiring an existing location from another СКАЧАТЬ