New York Franchise Law Blog : Franchise Lawyer & Attorney Charles N. Internicola, Providing National Representation of Franchisees and Franchisors

When it comes to identifying the "governing documents" that serve as the the infrastructure for a franchise system, it is extremely difficult to overstate the significance of a franchisor's "operations manual" and the critical role that it serves.  Designed to inject a form of flexibility into the franchisor - franchisee relationship (compared to the static terms contained in the franchise agreement) the operations manual (if properly referenced and identified in the franchise agreement)  the operations manual should serve as a critical vehicle to enable you to consistently refine, further develop and modify (within reason) the components of the franchise system and the day-to-day obligations of franchisees. 

Considering the interdependent relationship between the "franchise agreement" and the "operations manual", it is critical that franchisors constantly refine, update and supplement the operations manual to insure that the operations manual accurately identifies and reflects:

• Current franchisee training obligations.
• Current Area Developer and Area Representative training obligations.  Keep in mind that if you offer multiple franchise opportunities that go beyond a "single unit franchise" you must maintain separate operations manuals.  That is, if you offer area development or area representative rights, you must prepare and maintain a separate operations manual for area developers and area representatives;
• Current approved suppliers and vendors;
• Current architectural plans and specifications;
• Current rules and restrictions respecting the utilization of trademarks and trade dress; and
• Current procedures respecting the reporting of gross sales and reporting information;

There are many other topics that must be maintained and continuously updated in the operations manual.  However, the key is to consistently implement a franchise compliance program that is focused not only on the annual renewal of your franchise registrations but also the overall composition and accuracy of the operations manual.  Otherwise, should franchisee litigation arise, you may be exposing your franchise system to unnecessary "legal headaches" and potentially frivolous claims. 

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Many times, "start-up" franchisors (and, too often, some established franchisors) overlook the necessity of maintaining a thorough operations manual that is both "current and relevant" to the particular franchise system. That is, many times operations manuals are viewed as an "afterthought" or a"generic" obligation to be sourced out to third party vendors.

Much more than a "generic resource", your operations manual must be drafted, updated and maintained as an integrated extension of your franchise agreement and FDD disclosures. Recognizing the critical importance of a properly prepared and integrated operations manual, startup and established franchisors should consider the following:

• Franchise agreements are typically drafted and structured to integrate and obligate franchisees to abide by both current "and future" operational requirements set forth in the operations manual. If the franchise agreement is drafted properly, the operations manual should create "contractual flexability", allowing the franchisor to modify elements of the franchise system through amendments and supplements to the operations manual.

• Your operations manual must serve as a thorough blueprint to provide franchisees with detailed "how to" information respecting each and every administrative and operational element of the franchise system.  

Examples of "administrative obligations" include (a) the franchisees royalty and financial reporting obligations, (b) franchisees financial record retention obligations, and (c) system requirements for point of sale systems. 

Examples of "operational obligations" include (a) franchisees obligations respecting the management of the franchise business, (b) requirements for management and control of inventory and supplies, (c) building and construction plans and specifications, (d) training programs and obligations, and (e) operational elements respecting the day-today management and operation of the franchised business.

• The preparation of your operations manual cannot be a task that you simply "outsource". While it is prudent to obtain the advice and input of a qualified consultant (including your franchise attorney), the operations manual must directly reflect and embody "your" direct understanding and knowledge about the franchised business. "You" must be the primary contributor and driving force behind the preparation and development of your operations manual.

• Your operations manual must be consistent with your franchise agreement and FDD. Review with your franchise lawyer the content of your operations manual to ensure that there is consistency with your franchise agreement. Ensure that your training programs are extensively identified in the operations manual and properly disclosed.

• Your operations manual should be constantly updated, refined and clarified to reflect the constant and continuous evolution and growth of your franchise system. 

Your operations manual is critically important to the long-term success of your franchise - treat it as such.
 

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