{"id":220309,"date":"2023-01-31T17:02:25","date_gmt":"2023-01-31T04:02:25","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=220309"},"modified":"2023-01-31T18:39:51","modified_gmt":"2023-01-31T05:39:51","slug":"franchise-guarantees","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/franchising\/franchise-guarantees\/","title":{"rendered":"What are Franchise Guarantees in NZ?"},"content":{"rendered":"<p><span style=\"font-weight: 400\">Franchisors are always looking for new ways to encourage franchisees. A way to encourage new franchisees is by offering work or income guarantees. The purpose of this is to provide franchisees peace of mind with a guaranteed income or value of work to do when getting their business off the ground. However, guarantees are not as straightforward as they may seem. This article will explore franchise guarantees in New Zealand.&nbsp;<\/span><\/p>\n<h2><span style=\"font-weight: 400\">1. Types of Guarantees<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Guarantees are typically divided into two main types: work guarantees and income guarantees.&nbsp;<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<ul>\n<li><span style=\"font-weight: 400\">Work guarantees refer to where the franchisee is guaranteed a minimum amount of guaranteed work. In turn, this means a guaranteed minimum income. <\/span><\/li>\n<li><span style=\"font-weight: 400\">Income guarantees refer to where franchisees are guaranteed a minimum income from the franchisor. You can divide both of these guarantee types by the length of term they apply.<\/span><\/li>\n<\/ul>\n<\/div>\n<h3><span style=\"font-weight: 400\">Short Term&nbsp;<\/span><\/h3>\n<p><span style=\"font-weight: 400\">The most common type of guarantee are short term guarantees. \u2018Short term\u2019 guarantees may vary in length. However, they typically refer to between the first four weeks or up to four months after opening the franchise. The purpose of this guarantee is to allow franchisees to establish themselves without <\/span><a href=\"https:\/\/legalvision.co.nz\/franchising\/four-franchising-risks\/\"><span style=\"font-weight: 400\">risks or concerns<\/span><\/a><span style=\"font-weight: 400\"> about minimum income. For example, if a franchisee cannot make a certain number of sales within this guarantee period, the franchisor must make up for this loss.&nbsp;<\/span><\/p>\n<h3><span style=\"font-weight: 400\">First Year<\/span><\/h3>\n<p><span style=\"font-weight: 400\">Under the \u2018first year\u2019 guarantee structure, the franchisee is guaranteed a certain income during their first year of operations. In this case, the franchisor will monitor the franchisee carefully and try to ensure they meet this minimum income. For example, the franchisor might:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">focus marketing activities on the franchisee\u2019s business;&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">allocate more work to the new franchisee (if suitable in the context); or&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">pay the franchisee the shortfall revenue directly.&nbsp;<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400\">Until Met&nbsp;<\/span><\/h3>\n<p><span style=\"font-weight: 400\">Under this type of guarantee structure, the guarantee remains in place until the franchisee can meet a certain threshold of sales or profit. This type of guarantee is open-ended and does not have a deadline. However, a franchisor will usually only enter such a guarantee if they consider it reasonable to achieve within a certain period and when they are very confident in their business model.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">2. Disadvantages of Guarantees&nbsp;<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Guarantees are appealing to prospective franchisees for obvious reasons. However, there are significant disadvantages that franchisors must consider.<\/span><\/p>\n<p><span style=\"font-weight: 400\">First, a guarantee may cause the franchisee to become complacent. A new franchisee may have less motivation to succeed with a fixed income on offer. They may also become reliant on the guarantee that they are likely to be shocked when the safety net of the income guarantee disappears.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Another disadvantage of guarantees is that they may distract franchisees from conducting proper <\/span><a href=\"https:\/\/legalvision.co.nz\/franchising\/franchise-due-diligence\/\"><span style=\"font-weight: 400\">due diligence<\/span><\/a><span style=\"font-weight: 400\">. A guaranteed income can make it easy to forget other aspects of purchasing a franchise, including:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><a href=\"https:\/\/legalvision.co.nz\/franchising\/franchise-training-program\/\"><span style=\"font-weight: 400\">training<\/span><\/a><span style=\"font-weight: 400\">;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">support; and&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">systems on offer.&nbsp;<\/span><\/li>\n<\/ul>\n<div class=\"box box--icon box--star\">\n<p><span style=\"font-weight: 400\">Ultimately, franchise operations will contribute more to the longevity and sustainability of a business far more than any income guarantee. As such, you should give these aspects much more weight.<\/span><\/p>\n<\/div>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+64800005570\" class=\"not-prose\">0800 005 570<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    <script>\nvar 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Assessing a Guarantee&nbsp;<\/span><\/h2>\n<p><span style=\"font-weight: 400\">If you are considering buying a franchise with a guarantee offered by the franchisor, you will need to consider how much weight you will put on this guarantee.&nbsp;<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">You should also carefully assess whether the franchise still seems like a lucrative investment without the guarantee. If the guarantee is the key selling point, then it might not be the best investment.&nbsp;&nbsp;<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400\">Consider the following key questions when assessing a guarantee:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">What is the purpose behind the guarantee on offer?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Is the guarantee explicitly stated in the franchise documentation?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">How long does the guarantee last?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">What type of guarantee is on offer, and what amount?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Under what circumstances will it be paid?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Do any special conditions apply?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">What happens if the franchisor cannot afford to pay the guarantee?<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">What evidence is there that the guarantee has actually been paid out?<\/span><\/li>\n<\/ol>\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2021\/11\/30121230\/franchisor-toolkit-nz-small.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Franchisor Toolkit New Zealand<\/div>\n            <div class=\"body-text\">\n                <p>This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.nz\/franchisor-toolkit-nz.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Work or income guarantees are one way franchisors seek to encourage new franchisees to join their franchise network. Although they can appear enticing, guarantees are not as straightforward as they may seem. Some key points to understand about guarantees include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the different types of guarantees on offer;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">disadvantages of guarantees; and&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how to assess a guarantee.&nbsp;<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">If you need assistance understanding the different guarantees associated with buying into a franchise system in New Zealand, our experienced <\/span><a href=\"https:\/\/legalvision.co.nz\/franchise-lawyers-lp\"><span style=\"font-weight: 400\">franchise lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.nz\/membership\/\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.&nbsp;<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions&nbsp;<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1675137392299\"><strong class=\"schema-faq-question\"><strong>What are the main types of franchise guarantees?<\/strong><\/strong> <p class=\"schema-faq-answer\">You can typically divide guarantees into two main types: work guarantees and income guarantees. Work guarantees refer to where the franchisee is guaranteed a minimum amount of guaranteed work. On the other hand, income guarantees refer to where franchisees are guaranteed a minimum income from the franchisor.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1675137402160\"><strong class=\"schema-faq-question\"><strong>What are the disadvantages of guarantees?<\/strong><\/strong> <p class=\"schema-faq-answer\">A guarantee may cause the franchisee to become complacent. With a fixed income on offer, a new franchisee may have less motivation to succeed. Another disadvantage of guarantees is that they may distract franchisees from performing proper due diligence.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"ed19fd34f0\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/220309\" \/>            <input value=\"https:\/\/legalvision.co.nz\/franchising\/franchise-guarantees\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What are Franchise Guarantees in NZ?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Franchisors are always looking for new ways to encourage franchisees. A way to encourage new franchisees is by offering work or income guarantees. The purpose of this is to provide franchisees peace of mind with a guaranteed income or value of work to do when getting their business off the ground. However, guarantees are not<a href=\"https:\/\/legalvision.co.nz\/franchising\/franchise-guarantees\/\">Continue reading <span class=\"sr-only\">&#8220;What are Franchise Guarantees in NZ?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13267,"featured_media":215556,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"207573,2140,204598,202539,213624,211947","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[7],"tags":[25,54,292,1459,1744],"class_list":["post-220309","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-franchising","tag-small-business","tag-medium-business","tag-franchisor","tag-franchisor-support","tag-franchise-guarantees"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What are Franchise Guarantees in NZ? | LegalVision NZ<\/title>\n<meta name=\"description\" content=\"Work or income guarantees are one way franchisors seek to encourage new franchisees to join their franchise network. 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