Standardising Equipment Before Franchising: Put Running Costs and Repair Responsibilities Before Purchase Price

When turning an existing business into a franchise, it is common to build the equipment list by copying a supplier’s quotation. But unlike a company-owned outlet, where the business owner may deal with breakdowns personally, even a minor equipment failure at a franchised outlet creates costs for the franchisee and support responsibilities for the franchisor. Building a healthy franchise network means planning not just which machines to buy, but what they will cost to maintain, who will repair them and how trading will continue when they stop working. This guide focuses on the equipment purchasing and maintenance standards to establish before recruiting your first franchisees.

1. Define the performance you need, not just the model number

Start by grouping the equipment in your company-owned outlet by function. For each activity, such as production, storage, cleaning or payment processing, record what the equipment does and the impact of a breakdown. Even equipment used infrequently deserves a high maintenance priority if its failure would prevent you from supplying a core product. Conversely, premium features chosen to suit the owner’s personal preferences may not need to be mandatory specifications for franchisees.

Your equipment specification sheet should cover the following:

• Capacity: can it handle orders during the busiest periods?
• Quality requirements: which parameters, such as temperature, time or precision, determine the result?
• Installation requirements: what constraints apply to electricity, water supply, drainage, ventilation and space?
• Maintenance requirements: what work and time are needed for cleaning and replacing parts?
• Recovery requirements: are repair technicians and spare parts available in the areas where outlets will actually open?

Even if you designate a particular model as standard, document why you selected it. You will need criteria for assessing alternatives with equivalent performance if that model is discontinued or supply is delayed. Installing the same model in every outlet is not the same as ensuring that every outlet delivers the same quality.

When setting different specifications for small and large outlets, do not consider floor area alone. Review actual order volumes, staffing and stockholding cycles too, to reduce both overinvestment and insufficient capacity.

2. Turn the quotation into a total cost schedule for franchisees

A low purchase price can still leave franchisees with a substantial financial burden if installation work or consumables are expensive. The initial quotation should show whether it includes transport, installation, commissioning, accessories and removal of existing equipment, as well as the equipment itself. Clearly identify anything excluded as a separate cost.

Calculate operating costs separately. These include electricity and water consumption, routine inspections, filters and other consumable parts, repair call-out charges and equipment rental payments. Distinguish estimates based on projected usage from actual expenditure, and record the trading hours and operating conditions used in the calculations. Do not present a single figure as a guaranteed cost for every outlet.

For example, when comparing cleaning equipment, look beyond the purchase price. Run the machines through the same workload in a company-owned outlet and record consumable use, cleaning results and any extra staff time required. If a cheaper machine requires repeat cleaning, that burden should also inform the decision.

A comparison schedule could use the following categories:

• Pre-opening costs: purchase price or rental deposit, transport, installation and commissioning.
• Recurring costs: rental payments, inspections, consumables and usage-based charges.
• Irregular costs: breakdown repairs, major component replacement and reinstallation.
• End-of-use costs: return, removal, reinstatement or disposal.

This schedule is a tool for comparing equipment costs, not a profit forecast. Put confirmed quotations, measurements from company-owned outlets and assumptions that have yet to be verified in separate columns so that their reliability is clear.

3. Separate fault reporting from responsibility for repair costs

A franchisee reporting a breakdown to the franchisor does not mean that the franchisor must pay every repair bill. Equally, a manufacturer’s warranty does not remove the franchisor’s support role. To avoid confusion, identify separately who receives the fault report, who restores the equipment to service and who pays.

Check warranties and supply contracts, and summarise the warranty period, covered components, call-out charges, any exclusions for consumables and the procedure for determining whether damage was caused by user error. For rented equipment, also confirm who owns it and who has the maintenance obligation. A supplier’s verbal explanation may differ from its contractual commitments, so written confirmation is safer.

Your breakdown response procedure should cover at least the following:

• Tasks the franchisee must stop immediately and the safety checks required.
• Contact details for reporting the fault and the information needed, such as photographs, symptoms and equipment identification details.
• What the franchisor and supplier must each check and report back on.
• The repair cost approval process and how the quotation will be explained to the franchisee.
• Replacement equipment or restricted operating arrangements to use if repairs are delayed.

If the cause of a breakdown is unclear, do not immediately assign the cost to the franchisee. Check the inspection findings and warranty terms before explaining the decision, and provide a route for review if it is disputed. Separating urgent repairs from the final allocation of costs can help prevent disagreements over the cause from delaying the resumption of trading.

4. Reflect legal requirements in contracts and guidance

Franchising in South Korea is governed by the Fair Transactions in Franchise Business Act, commonly referred to as the Franchise Business Act. Article 5 sets out obligations for franchisors, including the installation of outlet equipment at reasonable prices and costs. This is why equipment requirements should be assessed for necessity and cost reasonableness, rather than set solely for the franchisor’s convenience.

Under Article 6-2, the disclosure document supplied to prospective franchisees must also be registered with the competent registration authority. Equipment-related opening costs and trading terms should be reflected in the relevant disclosure fields, and the explanations in the franchise agreement and quotations should be consistent. Registration does not mean that the government guarantees the reasonableness of equipment prices or the performance of the equipment.

Contract wording should specify whether equipment is purchased or rented, who receives payment, the scope of installation, maintenance obligations and the basis for allocating repair costs. It should also distinguish between the supplier’s warranty and any additional support promised by the franchisor. Vague wording such as “after-sales support provided” is not enough to set clear expectations for franchisees.

Terms requiring purchases from a particular supplier or requiring equipment replacement need separate legal review. Brand consistency alone does not justify every purchasing restriction or transfer of costs to franchisees. When drafting the agreement, explain the actual commercial arrangements to a qualified Korean franchise transaction specialist or lawyer and have them reviewed alongside the contract.

5. Test breakdown scenarios before recruitment

Do not limit testing at company-owned outlets to checking that equipment works normally. Simulate a critical equipment failure and test the response procedure. The key question is whether staff can report the fault, the responsible person can assess it and work can continue using an approved alternative without the business owner stepping in. Do not disable safety devices or conduct tests that create a real hazard.

Ask suppliers to confirm whether on-site repairs are available in the planned outlet locations and what conditions apply to spare parts supply. Do not assume that a response available at a company-owned outlet close to head office will also be available in a distant region. During recruitment, do not make firm promises about recovery times that have not been verified.

After testing, bring the performance specifications, total cost schedule and breakdown response procedure together into a single equipment management pack. Mark each document with the person responsible and the date it was checked. Make sure the materials used to explain arrangements before signing the contract are consistent with the operational manuals used on site.

Practical takeaway: Before recruiting your first franchisees, choose one critical item of equipment and work through its performance requirements, total costs and repair responsibilities from start to finish. If any costs remain unexplained or any support promises cannot be delivered, your equipment standards are not yet complete.