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Franchisee Advice

Ten Good Reasons Franchise Buyers Need a Lawyer

Before you sign for that franchise, have a pro read the fine print.

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Finally you’re poised to become an official franchisee.

You’ve completed due diligence: researched potential firms, found a product that ‘fits’ with your interests, interviewed ten to15 other franchisees to hear the pros and cons. You’ve narrowed it down to the business you favour and it’s time to sign on. Then, the franchisor provides a copy of the franchise disclosure document and agreements.

Whether you understand it or not, once you sign, you are legally obligated to uphold all the document’s provisions. Now is when you need to consult a lawyer. Too often they aren’t called in until there’s trouble, but with your buy-in fee at risk, it is well worth the extra cash for an expert’s oversight.

But not just any expert. Go to a specialist. Anyone looking to open a franchise should get professional advice either from an attorney or from a franchise firm that has some experience in the field. Your local general practitioner isn’t going to have a clue what they’re looking at. A franchise attorney knows what to look for, otherwise it’s a waste of time and money. You don’t want to pay them to learn.

Talk to My Lawyer

In case you’re still hesitant, here are ten good reasons to bite the bullet and invest in legal counsel.

1. Setting Up the Business Entity

For tax and liability purposes you have to establish a formal business. Whether you decide to operate as sole proprietorship, limited or general partnership, private entity, etc, the lawyer will work with your accountant to help you choose the arrangement that will best protect your home and personal assets from liability claims and ensure your proper percent of the profits.

2. Plain English

When you read it, you may not always get the details of the deal; the lawyer reads the documents and explains. Attorneys are familiar with the terminology, recognising standard conditions and clauses and alert to red flags when there are unusual demands or missing critical items. In evaluating the company’s track record, one warning sign is litigation history. Your lawyer will be wary of any past lawsuits or bankruptcy filings involving the firm or its principals.

3. Looking for Negotiables

The franchisor holds the cards; you are the franchisee and there’s not much leeway for discussion. With the playing field tilted in the franchisor’s favour, the lawyer’s job is to level it. Depending on the company’s leverage – how long they’ve been operating, the extent of their business and experience, how eager they are to expand – some franchisors may soften some of the terms. While the monthly royalty and advertising fees you’ve assessed are probably set in stone, there might be room for concessions on time deadlines for your start-up date, ‘grand opening’ support and how much time you’re allowed to correct transgressions before they call a default.

4. Setting the Boundaries

The size and extent of the sales territory you are granted is critical to protect you from undue competition. The lawyer clarifies the extent of your dominion, determining the geographical area and demographics you’re granted for your outlet. How many kilometres is its radius? Are the boundaries guaranteed? What exclusivity or protection is granted? Do you have the right to relocate if your lease expires or if your shop turns out to be in a bad business location?

5. Support

The franchisor agrees to provide back-up support for your fledgling business and the lawyer helps spell that out answering questions such as: What kind of instruction will you get? How many days or weeks will it take? Will it occur at headquarters or close to your home? If away, who pays travel? McDonald’s, for instance, requires nine months of on-site training.

Once you’re up and running, how much will the franchisor monitor your business? Does the company provide a free operations manual and how often is it updated? What restrictions specify details of remodeling, redecorating, obtaining supplies, uniforms or ‘trade dress’?

All franchisees are required to contribute to the advertising fund. This must be carefully worded regarding possible challenges to how ‘advertising’ is interpreted. Is it brochures? Flyers? Booklets? Media ads? Local or national? Who pays for the company website, is it supported by the firm or by the advertising royalties?

6. Disputes About Performance

Both you and the franchisor are expected to honour the letter of the arrangements between you, and clarifying default conditions is a critical element of protecting you if something goes wrong. What happens if one of you doesn’t perform up to par?

Failing to pay royalties or to uphold franchise standards are common areas of dispute. Are you expected, for example, to pay a minimum Management Service Fee each month whether or not you meet your required gross sales? Careful legal language is required to ensure your ability to cure a default.

7. Renewal and Termination

While you may be entering the franchise gung ho, the lawyer steps back and considers what happens if something goes wrong.

  • Under what circumstances can either you or the franchisor end your relationship?
  • Can you be dismissed if you fail to meet performance levels or if the franchisor merely decides to move from that location?
  • Can the franchisor cancel your agreement if you lose your lease?
  • Are you planning to be able to renew when your current agreement expires?
  • If so, are you required to remodel?
  • What rights might you have to sell or transfer your franchise location to someone else?
  • Would the franchisor have a right to veto potential buyers?
  • What about disabilities and death?
  • If your franchise fails, will the franchisor be required to purchase your inventory and supplies?
  • If you terminate, will you be able to pursue other business opportunities without undue hardship?
  • On the other hand, what provisions are there if you decide you want to expand to additional franchises?

A good franchise can help fulfil your dreams but you have to keep your eyes wide open – and two sets of eyes are better than one. Typically a franchisee has already identified a franchise concept and fallen in love. At that stage, it is very useful to have someone who is detached review the agreement and look at the system non-emotionally to be sure you understand the commitment you are facing.

8. Dotting the Is, Crossing the Ts

Once you’ve decided to go ahead and buy the business, the lawyer oversees the paperwork before you sign, preparing the asset or stock purchase agreement along with other documents that may be required.

9. Negotiating with Other Parties

In setting up a business, you’re apt to be hiring contractors, arranging deliveries with suppliers, employing staff. A lawyer helps work out the stipulations and clarifies responsibilities. For instance, when you’re leasing a business site, a lawyer may alert you to the required language that ensures you’re allowed to post signs and logos on the property.

10. Managing Dispute Avoidance and Conflict Resolution

Despite the care taken in drafting agreements, disputes do arise. Some common issues calling for litigation include lying about earnings, failure to provide ongoing training and support, terminating the franchise and enforcing post-term obligations.

In starting your search for a lawyer, word of mouth can be a very effective first step, so ask friends and colleagues for referrals. Then, do some research on the Internet. Besides legal firms specialising in franchise law, potential franchisees can also consult with search firms and brokers that specialise in matching up franchisors and franchisees. Additionally you can turn to FASA for a list of suppliers as well as some advice.

Franchisee Advice

6 Top Tips For Reading Management Accounts

There is a golden key that reveals the secret of whether your business will survive and thrive. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.

Richard Mukheibir

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There is a golden key that reveals the secret of whether your business will survive and thrive. It is not the brilliance of your business concept. It is not your talent for talking clients to sign on the dotted line. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.

Related: 6 Things You Need To Know About Profit And Cashflow

Many entrepreneurs are usually more interested in operations and find product development or sales much more enjoyable than catching up on accounts. I sympathise – I’m one of them! So if you feel the same way, my top tip is always to make sure that you partner with or employ someone who can oversee the finances for you.

But that does not mean you can let the figure boffins and the finances take care of themselves. To function properly in your business, you need to know the outcome of your sales and development strategies – and the story of that is told in your management accounts.

 If you never look at your management accounts, it is like blinding yourself in one eye. It means you risk being literally blindsided by a big surprise, whether it is heading for a significant loss or being confronted by an unexpected provisional tax payment.

Here is how Engela van Loggerenberg, our Group Financial Manager, puts management accounts in perspective for our new franchisees. She urges them to focus on six key areas:

  1. Priorities: Management accounts can help you pinpoint areas that you need to prioritise, whether to capitalise on growth or because they are not performing as well as you hoped.
  2. Strength: All businesses aim to grow their assets over time and the balance sheet in your management accounts will reflect whether and how you are achieving that.
  3. Control: A strong balance sheet is one that shows you have your business liabilities well controlled. The key marker here is your current liquidity ratio, which results from dividing your current assets by your current liabilities. To keep your business healthy, always aim to keep this ratio at least 2:1.
  4. Revenue: Ideally, you want to see your revenue grow month by month. Check your income statement both for the trend in actual revenue and also for actual against budgeted revenue to check how well your strategies are delivering results.
  5. Profitability: Of course, revenue is not the same as profitability. You need to know your gross profit – the basic figure of your sales less the cost of those goods – and net profit, which also deducts a range of other expenses including taxes. Track the percentage of these two profit figures as well as the actual cash amount they represent to keep a check on whether your costs are creeping up too high.
  6. Finance: Most businesses at some point want to finance their growth by borrowing from a bank. A set of well-regulated management accounts is a prerequisite to obtaining finance.

Your management accounts do not have to be particularly complicated to give you these vital pointers – and if you are figure-shy, the more straightforward the better.

The important thing, though, is that you do not allow yourself to be too scared to ask if there is something which is not clear to you. That is the way to keep control of this key to your business fortunes and to keep building your business from strength to strength.

Related: 7 Things Every Entrepreneur Should Know About Managing Cash In The Business

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Company Posts

A Three-Pronged Approach To Franchise Success

Danie Nel, head of business development for Cash Crusaders franchising, says the brand’s success over the past 22 years 
is attributed to the sentiment that “a profitable franchisee 
is a happy franchisee.”

Nedbank Franchising

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What is your current footprint?

220 Stores. We’re looking to increase that number by another 20 stores for the 2018 financial year, which will then bring us to a total of 240 stores. Depending on the economy, we’re looking to grow our footprint even more to around 300 to 350 stores nationwide in the near future.

What are some of your brand’s biggest achievements that other franchises can learn from?

Our ability to read the retail market and innovate to stay ahead of times. We have recently launched an online platform where customers can sell their goods or borrow money — all online. This was a first for online retailing. One other achievement that I would wish to highlight is the launch of our mobile phone range, Doogee, exclusive to Cash Crusaders. Personally, having the honour of opening our 200th store was a tremendous achievement.

Franchisor involvement has also played a big role in the success of the organisation. Our CEO Sean Stegmann and other senior managers are as much involved in the business as any other operations manager or operator.

There is simply no ‘ivory tower’ management in our business and it makes a huge difference.

Related: How Sorbet Franchisee Kate Holahan Is Nailing Success By Following Her Dream

What are some of the challenges you’ve encountered and how have you overcome these?

Some of our daily challenges include securing a premises at a favourable rental and securing a franchisee with sufficient unencumbered capital, who is credit- worthy. Once the store is open, cash flow management and stock procurement is key.

In addition to this, it’s a challenge to achieve profitability immediately and to meet franchisee expectations. It’s also vital to ensure superb customer service and to retain those customers in the current retail and economic climate. I would say that our single biggest challenge is to retain and to build our customer base.

What attracts franchisees to Cash Crusaders?

Our unique retail model that allows for multiple streams of income through one business. These three profit centres include: New goods (variety of imported quality goods), second-hand goods (which we buy directly from the public, either through customers coming directly to our stores, or via our house-buy system offered by some of our stores) and secured lending (a financial service where customers can borrow money against valuables, determined at store level, and the loan is repaid within 30 days — or the contract is renewed for another 30 days with interest and service fees charged).

Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit both the franchisor and the franchisee?

Gone are the days where you just got a deposit book or cheque book and a little business loan from your bank. Banking has become more sophisticated and the technology that the bank offers is as important as its service, making life for both the franchisee and the franchisor easier on a day-to-day basis.

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Franchisee Advice

5 S-Words Make Your Store Site Pay For Itself

Richard Mukheibir, CEO of Cash Converters recently addressed delegates at the FASA (Franchise Association of SA) conference on the topic of choosing the best location for their business. He spoke about the 5-S technique to assist business owners with deciding which premises is best suited for their business.

Richard Mukheibir

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The combination of continuing trading uncertainty in South Africa and the new financial year for many businesses can add up to carefully reviewing costs – including leases on premises. Choosing a site to set up or relocate your business can be just as stressful as deciding where to buy a house – and just as fundamental to its health, finances and sustainability, says Richard Mukheibir, CEO of Cash Converters.

This is not the time to snap up the property with the cheapest rental as that might turn out to be something you regret in the long run. Nor is it the time to be dazzled by the swankiest premises you can find. The potential for bragging rights could turn out to be poor value for money.

“This is a time for your head to rule your heart regardless of the industry you trade in.” he says.

The real-estate mantra of “location, location, location” works just as effectively in commercial as it does in private property but you will often be looking for rather different factors. Mukheibir shares his 5-S technique to help you begin narrowing down the areas where you will consider locating your business – first at the macro level, focus in further to the meso level, then look more closely at the micro level before you start weighing up specific sites.

1. Strategy

Remind yourself of the medium and long-term strategies you have developed for your business. Keep your understanding of your business’s customers, purpose and growth prospects top of mind when you are selecting the areas where you will start looking for sites.

Related: Effective Ways To Bring Customers To Your Door

2. Scope

Within those areas, redline any sections where you feel the competition from other businesses will detract from your potential to grow your market. Greenline areas where there are good synergies between the people who live or work there and the demographic that you have identified as your target market.

3. Synergy

Make sure there is clearly a good pool of potential customers for you – size definitely matters when it comes to ensuring that there are plenty of customers available to you. Look specifically for facilities that cater for the kind of customers you want to attract. Sports stores benefit from being close to schools and tertiary colleges, for example.

4. Sight

Although many businesses now have an online element, most still benefit from attracting customers to walk through the door. For your premises to be a good fit for your business, you should be located in plain sight and ensure that your ability to market yourself locally through signage and lamp-post posters is not restricted by local bylaws.

Related: FASA Establishes Industry Specific Food Franchise Forum

5. Security

You will attract and retain good customers and staff if they feel they’re secure in the area. This perception includes factors such as easy, safe parking and a welcoming environment.

“Making a success of your business is not just about the product or your branding,” says Mukheibir. “It can be as fundamental as finding a site that ends up paying for itself. To do this, it must offer you a well-calculated gap in the market where the strong demand for the product or service that your business offers ensures sales and profit. If you have considered all these steps carefully, you will never worry about making rent and wages payment again.”

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