Item 8 - RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Item 8 covers sourcing restrictions for the products and materials you will need to operate your business. It's common for a franchisor to stipulate purchase requirements, for a variety of reasons. Primarily, by restricting or guiding your purchases, they can protect the integrity of their brand, which in turn provides you with more value as a franchisee.

As a franchisee, there are typically three ways you'll be allowed to make purchases:

  1. Directly from the franchisor, or exclusively through a single supplier.
  2. Through franchisor-approved suppliers.
  3. Unrestricted, typically for routine items such as office supplies.


Objectives
  • Get an understanding of your supply chain obligations as a franchisee.
  • Determine your purchase restrictions and evaluate any third-party providers for goods not offered by the franchisor.
  • Compare the disclosed restrictions to those of other similar franchise systems.
Important Considerations
  • Franchisors that have no, or low, royalty fees, often require that you purchase your operating materials directly from them.
  • Sourcing restrictions are common, especially in food services franchises.
  • Does the franchisor charge you a competitive or lower cost for products and services they require you to purchase from them or a required vendor?