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What Future Franchisees and Franchisors Need to Know About the Term “Proven Franchise System”

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 11/09/2015 | Category: Start a Franchise | No comments

 

If you are researching the benefits of franchising, buying a franchise or starting a franchise, chances are that you have come across articles and promotional materials discussing the benefits of a proven franchise system. That is, prospective franchisees are advised that if they become a franchisee of  a particular franchise they will benefit from a proven system. While this vague term is used often and claimed by almost all franchisors, not every franchisor possesses legitimate systems and not every franchise system is proven.

So, what is a proven franchise system? While this question is subject to a broad range of interpretation, the following is some fundamental information about systems and franchise systems that must be considered by prospective franchisees and franchisors:

Systems – are simply the procedures and tasks undertaken by business owners and managers in connection with the day-to-day operations of a business.  Every aspect of a business including, advertising, financial controls, production of goods, employee management, and customer service can all be boiled down to a set of procedures and systems.  Not every business is successful and not every system is effective or beneficial.

Franchise Systems – are the procedures and tasks itemized and detailed by a franchisor (typically disclosed and detailed in the franchisor’s operations manual) in connection with the operation of a franchised business.  A franchisors business systems typically include tasks and procedures focused on (a) Marketing, (b) Customer Service, (c) Employee Training, (d) Production of products and (e) Methods for delivering services.

Proven Franchise Systems – Are the franchise systems that have been previously implemented (presumably by the franchisor and other franchisees) and have been demonstrated to result in successful and profitable operations of the franchised business.

Considerations for Prospective Franchisees:

Effective and legitimate systems are critical for the successful operation of a franchised business. Don’t just assume that a franchisor’s systems are proven or effective. Ask the franchisor’s representatives detailed questions about what makes their systems unique, effective, and profitable and recognize that the proven nature of a start-up franchisor’s systems, in most cases, may be extremely limited.

Considerations for Prospective Franchisors

Successful franchise systems depend on successful franchisees.  The mere act of preparing franchise disclosure documents and registering disclosure documents does not create a franchise. Strong franchises require thought out and tested business systems and procedures that have been tested and proven successful.  During the start-up franchising stage controlled growth (with limited franchise sales) may be necessary to will permit the necessary monitoring and refinement of your business systems.

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