Updating your franchise concept: agree the ground rules for change

When you turn your existing business into a franchise network, you give other business owners access to an operating model that will evolve over time. However, a new till system, service range or premises design can mean substantial extra work and investment for a franchisee. That is why you should agree the right to update the concept, and the limits of that right, before signing your first franchise agreement. The aim is to establish a process that allows development without surprises or uncertainty over who pays.

1. Distinguish routine updates from significant changes

In your own business, you may have been able to decide on a new way of working and introduce it immediately. In a franchise network, that decision affects independent businesses whose finances, leases and staffing situations may differ. A decision by the network’s founder therefore does not automatically entitle them to require any change they choose from a franchisee.

Before drafting agreements, classify the types of change you may need to make. At a minimum, distinguish between the following:

• Routine updates to instructions: for example, clarifying a step in the service process without materially changing workloads or costs.
• Operational changes: for example, a new booking system that requires training and data migration.
• Major investment: for example, replacing fixtures and fittings, buying equipment or refurbishing premises.
• Urgent changes: for example, addressing a safety issue or meeting a legal requirement.

For each category, record who prepares the proposal, how franchisees will be consulted and the timetable for implementation. Do not assess significance solely by the purchase price: downtime, staff time and obsolete stock can also create substantial costs.

Consider the cumulative impact of changes too. Several individually minor updates can place a heavy burden on a franchisee within a single financial year. A change calendar helps identify this before decisions are made and allows updates to be scheduled around seasonal trading patterns.

2. Put the right to make changes in the agreement, not just the manual

Finland has no specific franchising act, statutory franchise registration requirement or separate disclosure document prescribed by law for franchising. The usual business registration and licensing obligations still apply. Agreements are governed by general contract law, including the Finnish Contracts Act, and other legislation where relevant.

Section 36 of the Finnish Contracts Act allows an unreasonable contract term to be adjusted or set aside. The Finnish Act on the Regulation of Contract Terms between Businesses also prohibits unreasonable terms and practices in the circumstances covered by that Act. In addition, the Finnish Competition Act and EU competition rules limit the obligations that businesses can impose on one another. A variation clause does not override these rules.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation. Its relevance depends, for example, on membership and commitments incorporated into the agreement. It is no substitute for carefully drafted contract terms.

The franchise agreement should cover, at a minimum, the purpose and scope of changes, the procedure for making them and responsibility for costs. It should also specify when the franchisee’s separate written consent is required. If the operations manual can be updated, define the limits of that right and the order of precedence between documents. Simply requiring compliance with the instructions in force from time to time can leave uncertainty over the scale of financial obligations those instructions may impose.

Review the proposed procedure with a solicitor experienced in commercial contracts. Before a prospective franchisee commits, also tell them about any known forthcoming changes and their estimated impact. A system change that has already been decided should not be announced only after the franchisee has started trading.

3. Assess the change from the franchisee’s perspective

Evaluate each significant update as a separate investment. A benefit to the network does not, on its own, demonstrate that the change makes sense for every outlet. For example, standardising equipment may make the network easier to run, while reducing the value of an investment made by a franchisee who has recently replaced their equipment.

Support the decision with a financial assessment showing purchase and installation costs, any recurring fees, staff time spent on training and estimated downtime. Set out the expected benefits and the basis for them too. Distinguish observed results from assumptions: a new look or software package does not guarantee increased sales.

Model an alternative scenario in which the benefits take longer than expected to materialise. Would the franchisee still be able to meet their financial obligations? Also check how much of the agreement term remains. A major investment close to the end of the term calls for particularly careful assessment and clear agreement.

Possible solutions include a phased rollout, allowing existing equipment to remain in use until the end of its useful life, or a contribution towards costs from the franchisor. The right solution will vary between networks. What matters is establishing a well-founded process and documenting exceptions so that franchisees do not appear to be treated arbitrarily.

4. Introduce a documented change process

Prepare a brief written decision for each significant change. It should explain what is changing, why, which contract term authorises it and who it affects. Include a cost estimate, responsibilities, a transition period and a contact person for questions.

Give franchisees an opportunity to raise practical obstacles before the timetable is fixed. Consultation does not necessarily mean shared decision-making authority unless that has been agreed. Its purpose is, however, to provide information that the founder cannot see from their own outlet. Implementation may, for example, depend on a landlord’s consent or a lender’s decision.

Before the deadline, make sure the necessary equipment, instructions and implementation support are available. Keep versions of the decision and instructions, together with a record of when they were sent to franchisees. Urgent safety changes should have their own fast-track procedure, but the reasons for urgency and the allocation of responsibilities must still be recorded.

After implementation, monitor actual costs, disruption and benefits. If the original assumptions prove wrong, adjust the approach rather than insisting on the original plan at any cost.

Practical reminder: before signing your first franchise agreement, create a one-page change process and make sure the agreement supports it. A predictable approach to change builds trust across the franchise network.