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Franchisee Advice

The Perils Of The Franchise Agreement

Here are three critical components to identifying and mitigating the legal risks.

Monisha Prem

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Many entrepreneurs choose a franchise as an alternative to starting their own business due to the attraction of foregoing ‘school-fees’. The franchise business model promises established product or service, brand-name recognition, pre-sold customer base, ongoing support and training, increasing your chances of business success.

However, the allure of tried-and-tested business models and the promise of financial success are often inadequately executed in legal agreements, leaving the franchisee with little or no recourse in the event of failure of delivery by the franchisor.

Here’s what you should know before signing on the dotted line.

Three must-dos

1. Do your due diligence

Before entering into any agreement with a franchisor, conduct a due diligence to better position yourself to make an informed decision about the franchise opportunity. Focus on the franchisor’s system size and growth, ongoing support, training, and competitive edge.

Furthermore, analyse the franchisor’s financial information to ascertain break-even. In this regard, it’s critical to closely examine the disclosure document, which the franchisor is obliged to provide, containing, for example, written projections in respect of levels of potential sales, income, gross or net profits or other financial projections for the franchised business.

Related: Passing a Due Dilligence Test

2. Know the law

There are many pieces of legislation that impact franchising.

  • The Consumer Protection Act 68 of 2008 (CPA): The CPA and its regulations entitle consumers, including franchisees, to certain rights such as the right to obtain a disclosure document from the franchisor 14 days prior to signing the franchise agreement, and the right to cancel the agreement with no penalty within ten business days of signing it (cooling-off period).
  • Laws governing intellectual property: The Trademarks Act 94 of 1993 is of particular importance as the licensing of intellectual property to the franchisee is the core of the franchise agreement. The franchisee operates under a common trademark, format or procedure, and the franchisor offers or is obliged to maintain a continuing interest in relation to know-how and training. Therefore, trademarks, copyright and know-how are the three most important areas of intellectual property in most franchise systems.
  • The Competition Act 89 of 1989: This act states that there must be a balance between the protection of the franchise system and the interest of the franchisees and the public in ensuring adequate competition. When reviewing the franchise agreement, franchisees must look out for clauses relating to resale price maintenance, territorial restrictions, exclusivity, tying and intellectual property.

3. Obtain legal advice

Franchise agreements often contain comprehensive legal provisions that may intimidate franchisees. It’s good practice in business to have all important contracts reviewed by an attorney in order to have a clear understanding of all the terms and associated risks.

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Three don’ts

1. Don’t act too hastily

Do not read the contract hurriedly and be tempted to sign without close consideration. It’s important to read and understand the franchise agreement thoroughly. Failure to do so presents risks of future conflict or breakdown in relationships — questions or concerns for clarification are to be raised in writing with the franchisor.

Related: The Danger Of Being Franchisee No. 1

2. Don’t assume the franchisor will not amend the agreement

Occasionally franchisors utilise bully tactics, presenting the franchise agreement ‘as is’. The franchisee certainly has the option to negotiate less biased and mutually favourable terms. It’s however noteworthy to consider the intention of the franchisor who presents an unalterable franchise agreement.

The franchisor may use a uniform franchise agreement to protect the entire franchise system, including the brand, operating system and franchised business as a whole.

If a franchisor is not willing to negotiate on important issues, it could be an indication of potential problems within that franchise system as the franchisor lacks confidence and certainty concerning the validity of its brand and operating system.

3. Don’t sign if uncertainties persist

Bias provisions, unresolved risks identified or general reservations may result in discomfort when executing the franchise agreement. Persevere in negotiations or consider an alternate franchisor if discussion results in deadlock. Do not enter into an agreement with uncertainties still looming or terms that are difficult to abide by.

Monisha is a corporate advisor, admitted attorney at M. Prem Inc, and author with over 14 years deal-making experience. Monisha litigated for several years before joining an investment banking firm specialising in mergers and acquisitions. Monisha has owned and operated several businesses, is passionate about business development, commercial and corporate law.

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Company Posts

Col’ Cacchio: A Passion For Pizza

Greg Mommsen left the IT industry to join the restaurant trade and set up Col’Cacchio Bryanston in 2003. Greg is now a director at the Col’Cacchio group and shares the success of the 25-year-old brand and his journey as both franchisor and franchisee.

Nedbank Franchising

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Greg Mommsen

Vital stats

  • Player: Greg Mommsen
  • Franchise: Col’Cacchio
  • Established: 1992
  • Visit: colcacchio.co.za

What are your daily challenges and advantages, as a franchisor, in both corporate and franchisee stores?

col-cacchio-pizza

With the ownership of corporate stores we have the opportunity to test and trial new products, IT upgrades and new innovations within our corporate structure upfront. This way we can gauge the success of these initiatives without disrupting the franchisees.

Due to the hands-on nature of Col’Cacchio restaurants, it’s proven to be successful when restaurants are owner-operated.  This becomes a challenge with the corporate stores where reliance is placed on managers to run the restaurant.

Catering to the individual needs of corporate and franchisee stores from an operational support point of view can also be challenging.

Related: Col’cacchio Holdings Launches First Base

What contributes to the success of Col’Cacchio as an iconic Italian franchise?

Italian franchise

We have taken our time to expand the brand and have rolled out new stores at a slow and steady pace. Choosing the right franchisee partners and the right sites has been key to our success and sustainability. It always remains a major focus for the brand to produce products that are best in its class, and we take great pride in having a hand-crafted and exclusive product offering.

How do you continue to stay relevant in a niche market?

pizzeria-niche-market

To ensure that we are on trend with the market, we constantly reinvent ourselves through innovation. Our menu items are updated every six months and we continually broaden our offering to ensure that we evolve to stay ahead of the curve. We strive to be the consumer favourite in Italian food and offer a premium product that is of the best quality, value and overall experience.

Col’Cacchio has a great application-based loyalty programme that puts us at the forefront of change. On-demand purchases and deliveries have become a major trend in the market and we are currently evolving our online ordering solution to accommodate this need.

Related: Col’Cacchio Launches Mio

What qualities do you require your franchisees to have?

pizza-franchise-south-africa

Our franchisees have to be resilient entrepreneurs with good business acumen. However, too much entrepreneurial flair is not ideal, as franchisees need to understand and be willing to work within the brand’s guidelines and standards.

To be a restaurateur, you have to be comfortable with non-traditional trading hours and be customer service focused.

With ample new pizza brands entering the South African market, how has this affected your business?

new pizza brands

In general, the food industry has been active with the development of new brands in South Africa. We embraced this as an opportunity to develop a smaller Col’Cacchio offering with a slightly limited menu and more focused on takeout and delivery in order to cater for this segment of the market.

We continue to focus on leveraging off the strength of our existing brand by offering the best quality handcrafted products.

The menu has expanded to include light meals and breakfast in a wide range of healthy options, including gluten- and wheat-free bases and pastas, as well as carb conscious, low calorie and vegan-friendly dishes. We’re also in the process of revamping many of our restaurants, to ensure that our stores have an updated, fresh look to increase our appeal to a wider audience across the various parts of the day.

Related: The Pros & Cons Of Owning A Restaurant Franchise

Why is it important for successful franchises to have a strong relationship with their banking partners?

v-and-a-pizza

Funding is critical to the development of new restaurants. Having a great banking partner that understands your business, the industry as well as its risks is pertinent. This plays a big role when it comes to specialised funding solutions and ensuring the application process is quick and easy.

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Company Posts

Leading SA Franchise Group Cash Crusaders Continues On Its Growth Path

The company is growing from strength to strength thanks to its recession-proof business model that is built around three profit centres – specially imported new goods, secondhand trade and secured financial lending.

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National franchise group Cash Crusaders continues to show positive growth results despite a rollercoaster economy. The 1,7-billion-rand company saw an impressive 13% year on year same store growth between 2015 and 2016 with figures remaining favourable in 2017.

The company is growing from strength to strength thanks to its recession-proof business model that is built around three profit centres – specially imported new goods, secondhand trade and secured financial lending.

New store openings

The results speak for themselves. This year, the brand opened its landmark two-hundredth store in Soweto (the second store for the area), with ten new store openings following in quick succession including Mayfield Square, Robertson, Raslouw, Vryheid, Tembisa, Parow Station and Lydenberg.

Related: What Franchise Model Is Right For You?

By the end of the year, the total of new stores is expected to reach 214.

Cash Crusaders is South Africa’s largest secondhand retailer – three times the size of its closest competitor- and hasn’t stopped growing yet, with new store openings scheduled well into 2018.

A sure thing for franchisees

The brand is seen as a lucrative business opportunity for franchisees, most of whom own more than one store.

“The investment that the franchisor makes on innovation, research and development ensures we stay ahead of competition, remain relevant in the industry and persist as a strong player over the long term,” says Franchisee Damian Ohajunwa

With a successful track record of more than 20-years, Cash Crusaders is seen as a ‘sure thing’ business opportunity by potential franchise owners who see to  benefit from a proven three-tier profit system and an existing customer base.

3 Customer drawcards

Cash Crusaders’ unique business model incorporates three distinct product offerings, namely private label new goods, secondhand goods and secured loans, all of which translate into good sales figures.

Cash Crusaders’ directly-imported private label goods include home theatre systems, home and car audio, DJ equipment, musical instruments and household appliances. For value-conscious consumers, these quality products present a less-expensive alternative to big brands, a trend that’s becoming more pronounced in South Africa’s tough economic climate.

A reliable business partner

Cash Crusaders unique business model ensures franchisees have the support they need. A highly-experienced team are on hand to offer advice, planning, training and ongoing support from day one. It’s a symbiotic relationship that benefits everyone.

Business owners form part of the Cash Crusaders network, and are equipped  with a proven system of operation, thorough training and all the tools needed to succeed. The Projects Department work closely with franchisees, giving them the full benefit of their expertise from day one.

Related: Savvy Sales Skills To Grow Your Franchise Footprint

“Set up was assisted greatly by Operational Management who was involved from the get-go, from lease negotiation to build out costings and contractor sourcing. The final quality of workmanship was exceptional,” franchisee Christo Burger.

Dedicated to raising the industry

cash-crusaders-capitalThe proudly South African brand is dedicated to empowering entrepreneurs to be in business for themselves and helping them grow every step of the way.

Cash Crusaders has also shown its commitment to raising and changing the public’s perception of the secondhand  industry by advocating honest trading and regulating secondhand trade in South Africa through its association with National Association of Franchised Secondhand Dealers (NAFSHD).

The group is also a member of The Franchise Association of South Africa (FASA) and proudly subscribes to the FASA code of ethics and business practices.

“Make no mistake, Cash Crusaders is not just another secondhand business. We maintain the highest standards and ethics, and have gone above and beyond to change the public’s perception of the secondhand trade by proudly demonstrating our honesty, integrity and legitimacy,” says Cash Crusaders CEO  Sean Stegmann.

R300 000 start-up assistance

Cash Crusaders is the only franchise group that offers financial assistance to help entrepreneurs find their feet. If a potential franchisee has R800 000 in unencumbered capital, Cash Crusaders will give them R300 000 start-up assistance to cover initial running costs. T&Cs apply.

“Franchising is our passion, and our network of Franchisees are our family. From the outset, we pledged to partner with entrepreneurs who share our vison – innovative thinkers as committed as we are to building this brand. We want to do business with you and work together to ensure the success and profitability of your business. You’ll soon come to appreciate our “Make It Happen” attitude,” says Stegmann.

dont-take-chances-on-your-store

For more information about the franchise opportunities available, please visit www.cashcrusaders.co.za

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Franchisee Advice

Want To Leave Customers Grinning And Vowing To Return? Do The Following

These five quick tips will keep your customers coming back for more.

Basil O’Hagan

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happy customers

1Admit when something has gone wrong

Customers will respect your willingness to admit a mistake and effort to rectify things.

2Focus. Pay attention to customers

Don’t go into autopilot when serving them.

Related: Zappo’s Customer Service Excellence Comes Down To Company Culture

3Aim to be an expert

Don’t just be an expert salesman – be an expert in whatever your customer is interested in. The ability to offer genuine advice (instead of a generic sales pitch) is something customers will come back for.

4Pay attention to new customers

Aim to make new customers regulars by offering the sort of service they don’t receive anywhere else. A free gift can be a good idea as well.

Related: Go Above And Beyond With Your Customer Service

5Make customers feel valued

There’s nothing worse than being ignored by staff when you’re in need of service. Always be on hand when help is needed. Never chat on the phone when a customer is waiting.

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