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How an understanding of the role of the Operations Manual can be used to avoid problems

Updated: May 16, 2023

The main documents in every franchise are the recruitment prospectus, the franchise

agreement (FA) and the operations manual (OM). Each is important but the latter is often

overlooked. It can be argued that it holds a key to avoiding franchise problems and disputes.

The typical chain of events that takes place in the recruitment process is that a prospective

franchisee will look at the franchise prospectus, meet the franchisor, read the FA and decide

to join. Once the FA is signed it will probably be put in a drawer and forgotten. The OM may

be used during training but after that it will probably gather dust on a shelf. If it is in digital

form, as most now are, it will languish in a folder, somewhere in the franchisee’s computer. If

this happens it will be a serious missed opportunity for both the franchisor and the

franchisee.

It is fundamental that the FA will require the franchisee to comply with the OM. As every

business must adapt to outside forces such as changing markets, new technology and

different legislation, the OM will need to be revised accordingly. The changes will be made

by the franchisor but consent of the franchisees is not required. This provides the franchisor

with an opportunity to unilaterally make changes to the business. Significantly, this isn’t

possible with the FA where any changes require the agreement of both parties. This factor is

a sometimes a major benefit to the franchisor and could represent an area of vulnerability for

the franchisee.

The FA will almost certainly require the franchisor to promote and develop the business. As

this inevitably involves making occasional changes, which should be enshrined in the OM, a

lack of revisions could be an indication that the franchisor isn’t properly developing the

business. At least it would show that changes are not being correctly documented. This

factor could be important to the franchisee when doing due diligence prior to joining. It could

also be a factor in the event of a dispute because it could imply negligence or dereliction of

duty by the franchisor.

With regards to due diligence by a prospective franchisee; most recruitment prospectus state

that the OM will be made available for inspection. For obvious reasons this will only be at the

offices of the franchisor and no copying is permissible. A glaring omission on the part of

most prospects is that they very rarely take advantage of this opportunity.

Anyone who is considering franchising their business should understand the importance of

developing a clear and concise OM. If this is difficult because it is a business that makes a

large percentage of profit through speculative opportunities, it could be unsuitable for

franchising. The same applies if the business is heavily reliant on the personal contacts or

personality of the owner rather than a model that can be easily replicated. If the business is

suitable for being developed into a franchise it should be possible to write down a set of

instructions and processes that, if followed, will provide the projected level of return for the

franchisee. If the OM muddled or incoherent it is sensible to avoid it.

The development and drafting of the OM are probably the most important things that a

prospective franchisor has to be concerned with. For this reason, the use of a franchise

consultant or specialist OM writer is highly desirable. The drafting of an OM is not a simple

matter and a sizeable budget should be allowed, The resulting document will need to include

how to set up the local branch, capture sales, deal with customers, deliver the goods or

services, follow reporting procedures, comply with legislation and deal with suppliers. If staff

are needed there should be a section to explain recruitment, training and human resources

issues. Also, how confidential IP should be protected.


As previously stated the FA is also a key document. As franchising law is involved it should

to be drafted by a specialist solicitor. The solicitor will need to tailor the agreement to the

specifics of the business and the task will be greatly simplified if they have access to a well

written OM.

For all these reasons it can be argued that the OM is the foundation stone on which all

franchises are based. An appreciation of it can assist both franchisees and franchisors to

avoid franchise disputes and related problems.

Important takeaways;

If you are considering investing in a franchise take the opportunity to look closely at the OM

and see how frequently it has been revised. It will provide you with an understanding of how

complex the business is and assist you in deciding if this is the right franchise for you.

If you are a franchisor, make sure that you are using the OM to document every change in

working practices and promulgating them to your franchisees by issuing addendums. Doing

this will not only assist your franchisees but will also avoid problems by demonstrating

compliance with any obligations in the FA to develop and promote the brand.

If you are considering franchising your business, you should appreciate that the OM is

probably the most important document that you will personally have to deal with. Give it the

time and attention that it deserves. Lawyers will draft your FA, franchise consultants can deal

with most of the other matters, including finalising the OM, but you are the only person who

knows how the business operates and what processes your future franchisees will need to

follow. Getting this right at this stage will assist in avoiding problems later.

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