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Is a franchisee restricted when it comes to picking suppliers for the business?
As a franchisee, you may have to purchase goods and services from the franchisor or from suppliers approved or nominated by the franchisor. You will need to check the provisions of the franchise agreement regarding this.To ensure the high quality standards required and enforce uniformity throughout the network, a franchisor may dictate both the range of products and services that the franchisee can purchase and who those products are to be purchased from.If you have to buy all of your products from the franchisor, you need to enquire whether the franchisor will make a profit on this transaction. Occasionally the franchise agreement will not provide for the payment of a separate management services fee or other continuing fee - the mark-up on the sale of goods will instead be the source of profit for the franchisor.It may be that the franchisor will supply some of the goods or services and other goods or services can be obtained from suppliers nominated by the franchisor. You will need to find out who the nominated suppliers are and the terms and conditions on which you are purchasing the goods and services from them.Often the franchisee will receive the benefit of the bulk purchasing power and negotiating capacity of the franchisor and obtain favourable prices from nominated suppliers. In some cases, involving specialist products, it may be that only certain suppliers are able to provide these products to the standards required by the franchisor.There may, however, be other types of products that are freely available from a number of suppliers, and a potential franchisee should enquire if they are able to obtain the same product, or a product of the same quality, from an alternative supplier.
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