Changing your franchise concept: planning decisions and costs

When expanding your existing business into a franchise network, you need to plan for more than how the concept works today. New till systems, changes to the product range and updated interiors may become necessary later. The difference is that your decisions will then affect investments made by independent business owners. A clear framework for change allows you to develop the concept without creating unclear obligations or unexpected costs.

1. Distinguish routine adjustments from major changes

In a company-owned business, you can often decide on a change and start implementing it straight away. In a franchise network, the decision must also fall within the terms of your agreements with franchisees. Start by classifying future changes according to their consequences, rather than simply using the labels head office gives them.

A practical classification is:

• Routine adjustments: for example, clarifying working procedures without requiring significant investment.
• Planned concept changes: for example, a new booking system, new equipment or a refurbishment that affects operations and finances.
• Urgent measures: for example, changes needed to address a safety risk or meet new legal requirements.

Set out the criteria you will use to assess changes. Cost, staff time, operational downtime, training needs and the impact on existing investments are more useful than vague terms such as “minor update”.

Start with your current business. What changes have you made in recent years? Use them as test cases. If you cannot explain how an equivalent decision would be made and funded at a franchisee’s business, the framework is not yet clear enough.

2. Establish the right to make changes in the agreement

Sweden has no comprehensive franchise legislation, but it does have a specific Act on Franchisors’ Duty to Disclose Information (2006:484). This requires franchisors to provide clear, understandable written information well before the agreement is signed. Among other things, the information must cover financial terms and the conditions for amending the franchise agreement.

Your framework for change therefore needs to align with both the agreement and the information prospective franchisees receive before signing. A general statement that “the concept is continually evolving” is no substitute for clarity about the agreement’s actual terms. Nor does the disclosure legislation itself give you the right to amend an existing agreement unilaterally.

The Swedish Contracts Act (1915:218) is central to the assessment of contractual terms. Under Section 36, unreasonable terms may be modified or set aside. The Swedish Competition Act (2008:579) and EU competition rules may also apply, for example where a change concerns purchasing requirements or restrictions on a franchisee’s freedom to act.

Ask a lawyer specialising in franchising to review which changes the agreement permits, what restrictions apply and when a separate agreement is needed. The agreement should also clarify which documents take precedence. Updating the operations manual must not be used as a shortcut to introduce obligations that have no contractual basis.

3. Assess the financial impact before making a decision

Every major change should be supported by an assessment showing its consequences for the local outlet. A solution that is efficient for the franchisor is not automatically financially reasonable for the franchisee.

Look beyond the purchase price. Include installation, training, staff time, operational downtime, recurring subscription fees and the cost of phasing out the old solution. Distinguish documented effects from assumptions about future sales or savings.

Suppose, for example, that you want to replace the booking system. Check whether the franchisee is already tied into an existing subscription, whether customer data needs to be transferred and whether staff will have to work with two systems in parallel. Details like these determine the true cost of the transition.

Then decide how costs should be shared within the terms of the agreement. Will the franchisor fund development across the network while individual outlets pay for their equipment? Is a transitional arrangement needed for franchisees who have recently invested? Consider the remaining contract term too: a substantial investment close to the end of the agreement requires particular care.

Document the reasons for any exceptions. Fair treatment does not necessarily mean identical timetables, but any differences should have an objective justification.

4. Create a decision-making process with meaningful feedback

Introduce a regular process for proposing, assessing, deciding on and reviewing changes. Specify who is responsible at each stage and how franchisees can explain the local implications before a decision is made.

A franchisee council can be a useful forum for discussion, but its remit must be clear. The council’s support does not replace an individual franchisee’s consent where that consent is required under the agreement.

Use a short change notice that always includes:

• what will change and why,
• the contractual basis for the decision,
• the expected costs and work involved,
• the implementation deadline,
• the support available and who to contact with questions.

Match the notice period to the scale of the change. Do not set the same deadline for a simple procedural adjustment as for a refurbishment. Afterwards, review the actual costs and practical problems so that the next decision is better informed.

Practical takeaway: Write a simple framework for change before signing your first franchise agreement. Test it against a real change from your own business, and ask your lawyer to check that decision-making powers, responsibility for costs and contractual terms are aligned.