Home » Franchise » What are the disadvantages of the franchisor?

Choice of partner
The selection of future partners is as important as it is difficult for the franchisor. Larger systems have developed detailed selection procedures for this purpose. Every reputable franchisor has detailed franchisee profiles on the basis of which he checks his candidates.

Personal characteristics, professional qualifications and experience as well as financial requirements play an important role. Any error can have serious consequences for the system, which usually cannot be remedied by simply terminating the contract.

Although the franchisor has a limited right of instruction and control, he cannot usually enforce his instructions without intensive persuasion. The implementation of centrally controlled measures is therefore often delayed.

However, this disadvantage is usually more than offset by the positive effects of an open discussion.

In the absence of national franchise laws, the legal basis for franchise networks is the EU Block Exemption Regulation for vertical distribution obligations.

However, in the interests of competition and the independence of the franchisee, it sets limits on the franchisor’s rights of instruction and control. If the franchisor respects the independence of his partner while maintaining the system commitment, he also avoids converting the franchise contract into an employment contract.

Profit margin
The income of a franchisor from franchising is usually limited to the entry fee and current franchise fees. In some cases, additional surcharges are calculated for the franchisor in the case of purchase commitments to the contract goods.

For the franchisor, own businesses would often be more profitable, but in this case he also has to bear the risks or the costs of a failure.

Conflict resolution
Misunderstandings and conflicts of interest can arise in any partnership. Fatally in franchise systems, the potential for conflict increases when a franchise is successful, because the individual franchisee understandably attributes the economic success to his own commitment and increasingly perceives the franchisor’s help as annoying paternalism.

If a partnership regulation does not remain in this phase, these friction can lead to legal disputes and the dissolution of the Franchise relationship. It should always be ensured that legal disputes are avoided as far as possible, since they cost time, money and nerves and it is often impossible to reliably assess the outcome of proceedings. Forward-looking franchisors already offer conciliation or mediation procedures today.

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