Ensuring Franchisors Can Continue to Meet Their Obligations

A business that is ready to franchise must not depend on a single person, account or technology provider. If the owner falls ill or central systems become inaccessible, franchisees still need the services they have been promised. Before taking on your first franchisee, put a guarantee of continuity in place, backed by a practical plan. Within the franchise community, preparedness for disruption is an important part of mutual trust.

Understand the legal obligations and the limits of the guarantee

Indonesia’s Government Regulation No. 35 of 2024 on Franchising sets out the minimum provisions required in a franchise agreement. These include a guarantee from the franchisor that it will continue to fulfil its obligations to the franchisee. Contract discussions must therefore go beyond listing the services provided under normal circumstances.

The regulation also provides for a guarantee of compensation and/or the granting of franchise rights if the franchisor ceases trading. These two matters need to be distinguished: continuity of obligations concerns how commitments will continue to be met, whereas business closure requires separate arrangements to address its consequences.

This guide focuses on continuity of obligations during disruption, rather than the process of ending a franchise relationship. The contingency measures below are practical steps to support performance of the agreement, not a technical checklist expressly required in full by the regulation.

A guarantee of continuity is not a guarantee of franchisee profits. Avoid conflating assurances about service delivery with promises of turnover or a return on investment. Ask a legal adviser to ensure that the guarantee is clearly worded, enforceable and consistent with the other clauses.

Map the obligations that must not be interrupted

Start with the draft agreement and identify every franchisor obligation that directly affects an outlet’s ability to operate. Do not simply draw up a list of general risks, such as fire or internet outages.

Create a working table with the following columns:

• Obligation: the service or access promised to franchisees.
• Dependency: the people, systems, documents or providers needed.
• Impact of disruption: the outlet activities that would be affected.
• Interim solution: the alternative arrangements to use during recovery.
• Person responsible: the primary lead and their deputy.

For example, if franchisees are required to use a central application, decide what should happen if it stops working. Can transactions be recorded locally? Who will issue instructions? How will the data be entered afterwards without duplicating transactions?

For operational approvals, check whether every decision rests solely with the founder. If so, appoint a deputy and define the limits of their authority. The deputy must have legitimate access and authorisation, rather than simply knowing the founder’s password.

Set priorities according to the impact on outlets. Disruption that prevents transactions needs to be handled differently from delays to administrative tasks that can be rescheduled. Recovery targets should reflect tested capabilities, not figures chosen to make the franchise offering look attractive.

Put workable contingency arrangements in place

A continuity plan is of little use if the resources needed to support it are not yet available. For each critical dependency, prepare a fallback that can be activated without waiting for the owner to return to work.

First, establish a decision-making process. Decide who can declare a disruption, appoint an interim lead and approve emergency expenditure. Ensure that these powers align with the business entity’s governing documents and governance arrangements.

Second, provide secure access to working resources. Keep important documents in managed storage, use role-based accounts and establish procedures for restoring access. Avoid sharing one account among everyone, as this makes individual users’ actions difficult to trace.

Third, review your relationships with key providers. If support depends on a technology provider, understand its terms for backups, recovery and data retrieval. Do not promise franchisees a service that you cannot be sure the provider will deliver.

Fourth, calculate the cost of providing interim services. Consider the need for replacement staff, system recovery and communications with franchisees. Set a budget proportionate to the business risks, without describing those funds as a bank guarantee or another form of guarantee unless that is what they actually are.

Test the plan with a simple simulation: the founder cannot be reached and the main system is unavailable. Ask the backup team to follow the procedures. Record obstacles, response times and any decisions for which no authorised decision-maker has been designated.

Set out the arrangements in the agreement and internal procedures

The agreement should explain which obligations must continue to be met, how disruption will be notified, which communication channels will be used and what interim services will be provided. Include arrangements for dealing with outstanding obligations and the circumstances in which recovery measures need to be escalated.

Technical details, such as staff contact information and the sequence for restoring systems, can sit within internal procedures that are easy to update. However, do not use procedural changes to quietly reduce franchisees’ agreed rights.

Check that the arrangements are also consistent with the force majeure clause. Avoid promising service continuity in one section while granting an excessively broad exemption from all obligations in another. Seek legal review to distinguish circumstances that genuinely prevent performance from weaknesses in internal management.

After the simulation, retain evidence of the test and any corrective action taken. Repeat the testing whenever there are significant changes to the team or central systems.

Practical step: before offering a franchise, choose the three most critical obligations, appoint deputies and test how those obligations can be met without the founder present. A contractual guarantee is stronger when backed by proven operational capability.