Franchising an Existing Business: Planning Costs and Outage Support for Required Systems

A system that works well in company-owned outlets will not necessarily suit franchisees. Bringing bookings, checkout, ordering and sales reporting onto systems specified by the franchisor creates ongoing costs and outage risks for franchisees. To run a stable franchise network, establish exactly which systems are mandatory, who pays and what happens if they stop working—before recruiting franchisees.

1. Identify why each system is required, by business function

Start by listing the equipment, software and external services used in company-owned outlets. Include not only sales management terminals but also booking platforms, payment terminals, time and attendance systems, internet connections and maintenance services. This will give you a complete picture of the costs franchisees will actually bear.

For each item, record:

• The business function it supports and the features used
• Whether its use is mandatory, recommended or left to the franchisee’s discretion
• Why it needs to be specified and whether alternatives are acceptable
• The contracting party, payment recipient and support contact
• The operations affected if it becomes unavailable

For example, a system managing shared booking availability may need to be standardised in a way that an outlet’s internal time and attendance system does not. Rather than saying, “It is what our company-owned outlets use”, be ready to explain the intended outcome, such as preventing double bookings or standardising reporting formats.

Also distinguish between cases where a particular product is essential and those where any system meeting the required functions and integration specifications would suffice. Assign someone to assess alternatives proposed by franchisees and establish assessment criteria. This helps maintain quality without imposing unnecessary costs.

2. Check whether the requirements are justified under Japanese regulations

Japan has no single law governing franchising across all sectors, nor a franchise-specific registration scheme for franchisors or franchisees. However, particular laws do impose requirements.

Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors operating a ‘specified chain business’, as defined by the Act, to provide written disclosures and explanations before a contract is signed. Whether a business falls within this category depends on its substance, not its name. Relevant criteria include primarily serving small and medium-sized retailers; providing ongoing supplies of goods or arranging their sale, together with management guidance, under standardised contracts; permitting the use of trade marks or similar identifiers; and collecting payments when businesses join the network. Not every retail or food-service franchise automatically falls within its scope.

Check how the costs and mandatory use of specified systems relate to statutory disclosure requirements, and present them as terms that prospective franchisees need to assess their investment. Being outside the Act’s scope should not be taken to mean that significant costs need not be explained.

The Japan Fair Trade Commission’s Guidelines Concerning the Franchise System under the Antimonopoly Act are also relevant, whether or not the business sells goods. Conduct that unfairly disadvantages franchisees in light of normal business practices, or terms that impose unjustified restrictions, may raise issues such as abuse of a superior bargaining position, tying arrangements or trading on restrictive terms.

Requiring a particular system is not automatically unlawful. However, if franchisees must buy a package containing unnecessary features, or bear costs disproportionate to the intended purpose, seek professional advice on whether the requirement and its terms are justified.

3. Show the full cost of use, not just the initial outlay

Separate implementation costs from costs incurred after trading begins in your estimates. Even if terminals are inexpensive to buy, the combined effect of subscription fees, connectivity charges, maintenance fees and usage-based charges can materially affect an outlet’s finances.

Cost category	What to decide before recruitment
Implementation costs	Who pays for equipment, installation, initial configuration and data migration
Ongoing costs	Monthly fees, charges for additional outlets or terminals, and how usage-based charges are calculated
Maintenance costs	What routine maintenance includes, and extra charges for site visits or replacement equipment
Costs of changes	Who pays for equipment replacement, mandatory updates and migration to another service
Exit costs	Charges for cancellation, equipment returns and data export

Responsibilities differ depending on whether the franchisor contracts centrally and bills franchisees, or franchisees contract directly with the provider. State clearly what payments to the franchisor cover, whether they are charged separately from royalties and who will notify franchisees of price changes.

It is also important to check whether external service contracts run for the same term as the franchise agreement. If system fees may remain payable after the franchise agreement ends, establish those conditions in advance. Remove inconsistencies such as recruitment materials advertising ‘monthly fees only’ while a separate document imposes mandatory maintenance charges.

4. Address outages in both contracts and outlet procedures

Preparing for system failures involves more than allocating liability after a loss has occurred. Define what outlet staff can do immediately in situations such as being unable to process payments, check bookings or submit sales reports.

The contracts should set out the roles of the franchisor, franchisee and provider. These include maintenance support hours, the first point of contact, how recovery updates will be communicated, arrangements for replacement equipment and responsibility for additional costs. Also check that the support promised by the franchisor is secured under its agreement with the provider.

Outlet procedures should cover at least:

• Checks to distinguish connectivity problems, terminal faults and provider-side outages
• Contact details and an escalation sequence, including outside normal business hours
• Transactions that may be handled manually and those that must be suspended
• How to enter records after service is restored and prevent duplicate entries or double bookings
• How to record when an outage began, its impact and the action taken

If customer information is temporarily recorded on paper or elsewhere, specify where it must be stored, who may access it and how it must be disposed of after transfer to the system. Japan’s Act on the Protection of Personal Information applies to the handling of customer data. An emergency does not mean that information can simply be shared without restriction.

Also decide how delays to daily reports and similar submissions caused by outages will be treated, and provide a channel for alternative reporting. An outage beyond an outlet’s control should not be handled in the same way as an ordinary failure to submit a report.

5. Test the arrangements from a franchisee’s perspective before recruitment

In company-owned outlets, head-office staff may help with configuration, while costs may be paid centrally. These arrangements do not reveal whether franchisees can implement the system independently or what it will actually cost them.

During pilot testing, use the same access permissions, contractual terms and support channels that franchisees would have. Test the full process, from application and equipment installation through normal trading, fault reporting and data export. Trial fallback procedures in an environment that will not disrupt trading, and record the work needed to transfer manual records into the system once service is restored.

Pay particular attention to whether initial configuration can be completed using the instructions alone, whether the provider’s support hours fit the outlet’s trading hours and whether any work falls outside the quoted fees. Reflect the issues identified in recruitment materials, cost schedules, franchise agreements, provider terms and outlet procedures.

Practical takeaway: Before recruitment begins, prepare a one-page summary for each required system covering why it is specified, its total cost, the contracting party and fallback procedures during outages. Testing that summary against real operating conditions will help build a franchise network that franchisees can join with confidence.