Franchise Systems – What To Include In An Operations Manual

By Raynia Theodore, Principal, MST Lawyers and Jack Newton, Lawyer, MST Lawyers

The Operations Manual of a franchise system, together with the Franchise Agreement, are the most important documents that will govern the franchise relationship.

Most Franchise Agreements dictate that the franchisee must comply with the Operations Manual and that a breach of the Operations Manual constitutes a breach of the Franchise Agreement.  The Operations Manual usually sets out the “fine print” of operating a franchise business.  The importance, therefore, of the Operations Manual cannot be underestimated.

The Operations Manual for a franchise system in its infancy may be brief as it can take time for the franchisor to develop the key processes and procedures required to operate the franchise business.  Even for a franchisor in its infancy, it is important to have an Operations Manual and ensure that it deals with all the matters referred to it by the franchise agreement.

A prospective franchisee may request a copy of the Operations Manual before signing the Franchise Agreement.  Franchisors are often reluctant to give a prospective franchisee a copy of the Operations Manual prior to the franchisee signing a franchise agreement for fear that the franchisee will not proceed and run off with the franchisor’s “trade secrets”.  However, for a franchisor, it may be difficult to sell a franchise without providing the Operations Manual.  As a compromise, a franchisor should consider allowing a prospective franchisee access to view the Operations Manual at the franchisor’s office.

A well drafted Operations Manual should address the following:

• A general introduction and information about the franchisor.
• Key people (i.e. employees) to be engaged in the franchise business. This section may include information about employee roles/job descriptions, uniform requirements, recruitment procedures (such as advertising and interviews), training and performance management criteria.
• Products and services – this section is critical as it usually addresses, in greater depth, the products and services that are sold in the franchise business. For food franchises, the information provided should include details of ingredients, recipes and nutritional information.
• Suppliers – one of the key attractions of the franchise model is the greater buying power that may be achieved. Franchisees are generally required to acquire products and services for use in the franchise system from approved suppliers.  The details of the products and services and the approved suppliers should be set out in the Operations Manual.
• If the franchise operates from fixed premises – a retail shop or office there will no doubt be a section in the Operations Manual that details the franchisor’s setup, branding, equipment and furniture requirements as well as store procedures (such as opening and closing processes and hours).
• Equipment used in the franchise business and information about safe work practices and how frequently the equipment is to be tested and serviced.
• A section on techniques for dealing with customers and ensuring high customer satisfaction. Often the section will include a set of standards or goals for customer service, together with complaint-handling procedures.
• Information regarding the franchisor’s branding requirements pertaining to items such as stationery, advertisements, signs and posters.
• Details of all the policies and procedures of the franchise system, including policies in respect of privacy, equal opportunity, workplace conduct (such as harassment, bullying and discrimination), dispute resolution and employment.
• Information on health and safety covering first aid, fire safety and evacuation, pest management, accident reporting, robbery and other crime and drug and alcohol use.
• Financial matters (such as the point of sale system, cash handling and floats) as well as sales, stock, wastage and cost management. In addition, this section may cover reporting procedures and stock ordering.

Key matters to note:

The two most critical questions that franchisors should consider when drafting their Operations Manual:

1.            Are all of the matters that the Franchise Agreement states are covered in the Operations Manual actually covered?

2.            Are any matters in the Operations Manual that appear to be inconsistent with the Franchise Agreement?

The Franchise Agreement should provide that the Operations Manual can be changed by the franchisor from time to time.  This is important to ensure that the franchise system can evolve and keep up with advances in processes and technology.

 If you have any questions regarding the establishment of a franchise system or need help preparing an Operations Manual for your franchise, please do not hesitate to contact our Franchising Team by email or call +61 3 8540 0200 if you would like to speak with our franchising lawyers directly.