Changing a Franchise System: Policies to Put in Place

When franchising an existing business, having a clearly defined system on opening day is not enough. Eventually, equipment will need replacing, processes will change or a new ordering system will be introduced. Before taking on your first franchisee, establish a fair process for managing change. Trust within a franchise network depends on clear boundaries around decision-making, costs and accountability.

1. Distinguish operational changes from contractual changes

Not all changes carry the same weight. A new cleaning method may be a simple operational adjustment. Requiring all equipment to be replaced may involve substantial investment. Introducing additional fees directly affects what the two parties have agreed.

Define three categories before offering franchises:

• Routine adjustments: clarifying instructions, reorganising tasks or making improvements that do not involve significant additional costs.
• Major operational changes: new equipment, changes to shop layouts or new sales systems.
• Changes to contractual rights: new charges, changes to the permitted use of the brand or additional financial obligations.

Specify who can approve each category. Do not assume that issuing a new manual is enough to change the terms of a contract. Ask a lawyer to assess which changes fall within existing permissions and which require a separate written agreement.

2. Put the power to make changes within the proper legal framework

The Philippines has no single comprehensive law covering every aspect of franchising. However, there is a specific regulation: Executive Order No. 169, series of 2022, which establishes protections for micro, small and medium-sized enterprises taking up franchises. These include minimum contractual terms and registration of covered agreements with the Department of Trade and Industry (DTI). Have the applicable procedures and current rules reviewed before offering franchises.

The Civil Code is also important to the validity and performance of contracts. A change does not automatically become fair or enforceable simply because the contract gives the brand owner the right to make it. The scope of that power, how it is exercised and its effect on the other party must all be assessed.

If a change involves new uses of the brand or materials, the Intellectual Property Code, Republic Act No. 8293, may be relevant. If a new system will collect customer data, Republic Act No. 10173, which protects personal data, must also be considered.

Republic Act No. 9178 is not a franchise law; it concerns barangay micro business enterprises, a category of micro-enterprises in the Philippines. Nor should membership of an association be treated as a substitute for legal compliance. The QFA code sets standards for its members; it does not constitute government approval for every change.

3. Test changes first and disclose the full costs

Before requiring franchisees to make a change, test it in your own operations where practical. For example, if you plan to replace kitchen equipment, do not measure speed alone. Also consider electricity consumption, repair requirements, safety and training time.

Prepare a short briefing that answers the following questions:

• What problem does the change address?
• What were the trial results?
• What are the costs of purchase, installation, maintenance and any potential downtime?
• Who will pay, and what is the contractual basis for this?
• Is there a cheaper way to achieve the same standard?

Distinguish expected benefits from proven results. If the change has been tested at only one outlet, say so. Its impact may differ between a small unit and a large shop.

Make provision for recently purchased equipment too: replacement could be deferred, or an equivalent approach allowed temporarily, provided this is safe and consistent with the contract.

4. Set out notice periods, transition arrangements and compliance records

There is no single practical notice period for every change. A safety correction has different requirements from replacing furniture. Set the timeframe according to the risk, equipment delivery times, training needs and the ability to fund the change.

Every notice should state the reason for the change, its scope, effective date, costs and a contact person. Include a process for requesting an extension and the criteria for approving it. Acknowledging receipt of a notice does not automatically mean consenting to a new obligation that requires agreement.

Keep records of the previous procedure, the new version, approvals and each outlet’s compliance. Where there is an immediate risk, issue clear temporary measures first, then work out the long-term solution.

Practical summary: Before franchising, create a change policy that aligns with the contract and operations manual. It should make clear what can be changed, who decides, who pays and how franchisees can have their say.