During my franchising career, I’ve found it’s an exception when a franchise candidate reviewed the franchise operations manual before signing the franchise agreement. Considering the importance of the operations manual and its references in the franchise agreement it’s a surprising observation.
Following are examples of how the franchise operations manual is referenced in franchise agreements:
- Franchisees agree that the Operations Manual maintained by the franchisor controls in the event of a dispute over its contents.
- Franchisees agree to sell only those authorized products and services described in the franchise operations manual.
- The franchisor has the right to revise the operations manual as it deems necessary to update operating, marketing techniques, standards and specifications in any manner, including updates contained in monthly newsletters. Franchisees are required to update its Operations Manual as instructed by franchisor. Since many operations manuals are in digital format updates become much easier to complete.
- Franchisees must agree that the franchisor master copy of the operations manual controls in the event of any disputes over its contents.
These examples indicate how important it is for a franchise candidate to review the franchise operations manual before committing to sign the franchise agreement. An important part of the franchise due diligence process is a review of the franchise operations manual. A review by the franchise candidate or their attorney should include the following:
- Comparison of key provisions of franchise agreement to operations manual
- Determining how often updates are made to the manual and the method of communicating updates to franchisees
- Questioning franchisees regarding any issues, problems or disputes pertaining to updates to the manual altering the operation of the franchise or financial aspects of the franchisee
It’s important that franchise candidates review the franchise operations manual before signing the franchise agreement. The franchise operations manual is linked to and becomes a part of the obligations each franchisee agrees to when they sign a franchise agreement. There are numerous examples of franchisee-franchisor disputes that arose from a conflict regarding changes in the operations manual, which affected the operation of the franchise.