Managing franchise renewals

Franchise recruitment is often the main focus and priority for franchisors but what about existing franchisees?

Managing franchise renewals

Franchise recruitment is often the main focus and priority for franchisors but what about existing franchisees? How do you ensure that the term of your existing franchise agreements does not lapse and what can you do at renewal?

To develop an effective franchise renewal management process, it is important to understand what your franchise agreement says about renewals. Most franchise agreements will typically contain at least the following requirements:

Eligibility criteria

The right to renew is usually conditional upon the franchisee complying with certain criteria – this may include being up to date with payments, being compliant with the franchise agreement generally. There may be additional criteria depending on the sector – for example in a regulated sector like homecare or childcare there may be a condition of having achieved a minimum grading with the regulator or in a retail environment there may be a condition to refurbish the premises or in a van-based franchise there may be a requirement to refresh the vehicle. 

Whatever your criteria are, you must have a process for assessing your franchisees to determine whether or not they meet the criteria. This means considering your own team’s capacity for carrying out audits especially if there are multiple individuals or teams involved in the process and the decision making. The auditing process must be transparent and evidence based so that, especially, where the franchisee is not meeting the criteria, you can explain which criteria they haven’t met, why (this is the evidence bit) and set out the options. The options are the important part and where there is an opportunity for your as the franchisor. The options may be:

(a) You allow the franchisee a reasonable period of time to improve and then they will be reassessed. This will need to be factored in both in terms of time and your own resource.
(b) For the franchisee to sell and exit in which case instead of progressing the renewal pathway, you can switch to a resale pathway and help your franchisee exit.

Renewal notice requirement

Do you require your franchisees to give you a minimum notice of their intention to renew? Even if contractually the onus is on the franchisee to notify you, you may wish to build your process around what works for you so that renewals can be planned and managed proactively rather than reactively. In reality, dates can easily be missed and, in my experience, this is rarely a date which gets diarised by franchisees. In fact, most franchisees are probably not even aware that they must inform the franchisor of their intent to renew. 

Requirement to have completed refresher training

What does your renewal training look like? Do you offer a generic training course or do you assess each individual franchisee’s gaps and needs and offer them training in areas where they may benefit from further training?

In addition to the above, you will, of course, also need to issue the renewal franchise agreement to your franchisee and to allow them a reasonable amount of time to read through the agreement and to seek legal advice. Most franchisors now insist that their prospective franchisees must obtain legal advice prior to signing the franchise agreement. This requirement should also apply at renewal and whilst in practice only a small proportion of existing franchisees do seek legal advice on renewal you should nevertheless allow sufficient time within your process for franchisees to do so.

Renewals present the perfect opportunity to re-set goals, expectations, performance requirements, ensure that the latest processes and requirements are implemented. But what about fees? Franchisors, often reserve the right within their franchise agreements to charge a small fee for administering renewals. The fee, however, should ideally not be an income source but at most should reimburse the actual costs incurred by the franchisor such as any external legal or training costs.

As your network grows and matures, so will the renewal management process. As can be seen from above, managing renewals is not just an admin task of getting the documents out but should be seen as an integral part of the management and development process for all franchisees.

Natalia Shvarts
Natalia Shvarts