In The News

Sun 7 May 2017

Company Owned vs Franchised Operations – What Does This Mean?

Business Planning & Strategies

Generally, from my experience if you operate within a franchise system, most stores, outlets and/or operations will be franchised rather than company owned. While a few franchise systems take a different approach and have relatively equal numbers of franchised and company owned operations, this tends to not be the common practice, especially as a system and its network grows.

Whether a system does have an equal number or lesser number of company owned operations versus franchised operations does not mean that a franchise system is better and/or has more risks than another system or network.

There are a number of reasons why the choice is made as to the relevant numbers of franchised operations versus company owned operations, and this choice may change as a system and network changes.

Arguably, the business focus and resourcing required and available will be a key factor (or at least, should be a key factor) in regards to what choices are made by the relevant franchisor from time to time.

More often than not, we have seen that franchisors tend to avoid taking on “Franchisor” and “Franchisee” roles, by choice or necessity due to the additional resources and focus required to take on both roles. Where we have seen company owned operations, more often than not these seem to be the result of a Franchisor seeking to:

  • have operations or sites that have an additional purpose to enable franchisees to undertake training at these controlled sites and/or the ability to trial and test new products, services, processes and/or systems before any roll outs to various franchisees;
  • control key locations and/or sites;
  • take up an opportunity when franchisees are not available, with the goal to turn the the operation into an existing business that can then be on sold; and/or
  • take back an existing franchised operation due to unforseen issues that have arisen.

Given the above, we suggest:

For Franchisors: – They should make a considered approach that they regularly review to ensure that they have (and continue to have) the right mix, and that they have the dedication, resources and ability to carry through with their strategies, whether this be franchised or company owned operations.

For Franchisees: – Before entering into or renewing their franchise they ensure they do a proper due diligence into their Franchisor, system and network to work out the Franchisor’s vision, focus, strategies, and whether the Franchisor has the resources, ability and dedication to carry this through for the benefit of their franchisees.

Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.

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