Reputable franchisors provide a range of services that have been carefully designed to improve the business performance of their franchisees, as well as the national standing of their brands.
In the early days of franchising, perhaps when both parties were a bit less street-wise, franchise agreements contained extensive detail about the obligations that the franchisor offered to perform for franchisees. These days, agreements can tend to be more on the general, even vague side, and it is difficult for franchisees to know what to expect. While obligations will differ from business to business, almost all experts would agree that there are certain franchisor obligations that are fundamental to ethical franchising.
We outline what you should expect, as a basic prerequisite, and then some added extras, the cherries on top…
Disclosure
While disclosure should come before any deal is negotiated, ethical franchising means that franchisors will provide full disclosure to serious prospective franchisees, who in turn undertake to keep this information confidential. A thorough disclosure document will detail the number of franchisees in the network (and provide references and contact details for each of them), financial statements, litigation history, recent management changes, business styles and backgrounds of the top executives involved.
Franchise agreement
The franchise agreement governs the franchisor-franchisee relationship, and this is where all the franchisors’ obligations will be outlined. While many of the points will be negotiated, the “ideal” franchise agreement will contain elements that benefit franchisees, such as competitive selling prices, reasonable royalty fees, reduced start-up costs for additional outlets opened, protected territories, assistance with site selection (a review of demographics, rent and position), store layout or construction plans (this will save you by not having to start from scratch with an architect) and help with financing (based on agreements they have with the banks or finance companies).
Training
A major benefit of buying into a turnkey franchise system is that you’ll be taught everything you need to know in order to set up and run the business effectively – you will be able to literally “turn the key” and get trading.
It is therefore essential that the training offered by a franchisor is delivered on, and delivered well. Annie Baptiste of franchising consultancy Franchising Plus says a solid franchise training package should include a comprehensive mix of classroom basics and operational training, with about two thirds of the time spent on operations.
The theoretical aspects should cover topics related to general business skills – from basic finance (cash flow, accounts, tax, Vat etc.) through to HR, sales, marketing, customer service and retail. Franchisors should provide an overview of the sector in which the business operates, as well as the product’s positioning in the market and its strengths, weaknesses, opportunities and threats. There should also be an introduction to head office, its staff, the company’s philosophy and an orientation around the operations manual.
On-the-job practical training should take place at a company-owned store and last as long as it takes for franchisees to feel familiar and adept at the systems and equipped to take on the challenges that lie ahead. Head office staff should also be available for structured operational training in the store, before and during the launch period.
While there is no “perfect” time period when it comes to training, as this depends on the nature and complexity of the business and the skills that need to be transferred, Baptiste maintains that “anything less than a week should raise eyebrows, no matter what the franchise”.
You should also receive comprehensive training manuals to refer back to. Of course, training should not begin and end with the franchise launch. An excellent franchisor will commit to ongoing training in order to constantly improve and enhance franchisees’ skills.
Support
One of the draw cards when buying a franchise is the support on offer – you are not going it alone. You should be able to rely on your franchisor for ongoing support and assistance in all aspects of the business. The franchisor should have spent a fair bit of time developing the necessary systems, and they need to share this information on an ongoing basis. A support line and an email address for additional questions should also be available for franchisees.
Of course, the level of support required will differ from one franchisee to another, and franchisors are aware of the fact that a line needs to be drawn between supporting franchisees in genuine need of support and those who are so demanding of their franchisor’s support that they substitute their own efforts so that eventually, if not quickly, they become dependent upon their franchisor’s support for the success of their business.
As Anita du Toit, franchise specialist at FNB Commercial puts it: “Most franchisors understand that the first couple of months, when a new franchisee starts trading, are the most critical and that franchisees will require the most assistance during this period. However, the franchisee remains responsible for the daily operations of his franchise, while the franchisor’s role is that of support and further development.”
Protection and reputation
Part of the franchise fee is for the right to use the franchisor’s intellectual property; their trade name, trademarks, know-how, copyright and business system. A sound franchisor will agree to protect this intellectual property on a franchisee’s behalf and take whatever steps necessary to do this – even if it means taking court proceedings against infringers. A reputable franchisor should have invested and should continue to invest in developing the brand and ensuring that customers/clients hear about it.
Quality control
If you’ve been frustrated by the stringent evaluation process that your franchisor’s put you through, be encouraged that it’s a sign of a franchisor who takes his business seriously. Franchisees who are a poor fit and underperform can damage the reputation of the brand, so a good franchisor will exercise reasonable control over a franchisee’s operations and investigate reasons for poor performance. A good franchise package ensures that the appropriate channels of communication exist for both parties to air grievances and work together – restoring issues that arise without impairing the franchisor-franchisee relationship.
Improvements
In order to maintain the growth of the overall business, a franchisor must constantly enhance, develop and improve the system, services and product range. A dynamic franchisor will monitor the market and provide feedback to franchisees regarding new trends and opportunities.
Marketing and advertising
If you are paying towards a national marketing fund, you’d like to see a franchisor who initiates and co-ordinates effective campaigns, and keeps up with trends in order to keep the branding current and evolving. A franchisor who understands the value of the brand they have built will be excited to share information on where they see the brand going and what innovations they’re going to introduce in order to get there.
Benefits
A solid franchise package will mean that franchisees have access to bulk-buying opportunities and can enjoy negotiated discounts. It may even mean that the franchisor has developed products and services to enhance the brand’s competitive position, and makes these available to the franchisee at competitive prices. A franchisor who puts franchisees under obligation to buy inputs must be able to prove that it is a comparable offering to that of external suppliers.
While many franchise packages out there leave a lot to be desired, Eric Parker, franchising industry stalwart, makes the comment that a lot of unethical franchisors will be rooted out with the Consumer Protection Act. “Franchisees will basically be able to cancel a franchise agreement if they are not treated fairly by franchisors.” Parker says that fair practice is at the core of this Act – something all prospective franchisees will look forward to in helping them choose the perfect franchise for them.
Published in Your Business Magazine
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