Franchise Agreement Audit

Depending on the terms of the franchise agreement, it would be wise, under these conditions, to send the franchisee a notice of compensation for the infringement and to offer additional training, subject to the extent of the training already offered and the system assistance offered, before the franchisor endeavours to terminate it. 1. First, franchisors often recruit external accountants who may not understand the transaction. As a result, listeners may find “franchise income” where there is none. Relationships between franchisors and franchisees, including monitoring of standards and termination conditions, must be properly described in the agreement, which cannot in any way violate existing laws. Before deciding to review a franchisee, a franchisor must ensure that it reads and fulfills its own procedural obligations in the franchise agreement. In this position, the franchisor`s ability to assert its rights is avoided if the examination reveals non-compliant conduct. Each franchisor can probably refer to some of its system that would be good candidates for an exam. Unfortunately, the simple selection of “problem” franchisees can have serious consequences for the review without documented planning and procedures. First, a method of selecting candidates for the examination should be put in place, which would select a fair sample of franchisees. In this way, the selection process can withstand fairness. Second, franchisees should be formally informed: selected franchisees and their executives, owners or operators should be formally contacted by certified mail. Individual franchise agreements may specify the time frame that must be indicated prior to the review, and these periods must be strictly adhered to.

If there is no period of time in the verification clause, we recommend no more than two or three weeks` notice. Third, the same types of registrations when requested by all candidates for the exam, by the notification letter or in subsequent correspondence. Fourth, all review procedures and notices should comply with the standards set out in the franchise verification clause. Today, franchised systems are being challenged more than ever. They are challenged to expand their systems, expand their concept, add new product or service offerings and monitor their members. What cannot be lost is the need for honest cooperation between franchisees and franchisees. Franchisees were responsible for representing the brand to the public and properly paying the franchisor for the right to use the mark. The financial strength and well-being of the system depends on compliance and integrity. Franchisors are their own, their investors and all their franchisees, to ensure total respect.

Regular on-site audits can be a valuable tool for achieving this goal. With respect to cost-benefit value, many franchise agreements have clauses that provide that review fees must be borne by the franchisee when non-compliance with a certain threshold is met. As a result, franchisors can recover the cost of an audit program in many ways.