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Franchisee Advice

The Legalities Of Shutting Down Your Business

Circumstances may lead to you deciding that it’s time to shut down your business. This is not unusual in the entrepreneurship lifecycle, but do you know what the legal consequences are?

Monisha Prem

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The main approaches of legally shutting down your business are through deregistration and liquidation.

When can your business be deregistration?

A company and close corporation may be deregistered by the Companies and Intellectual Property Commission (CIPC) in the following instances:

  1. Non-compliance with requirements: The CIPC will deregister the company if
    1. The business failed to lodge annual returns for two successive years.
    2. The CIPC believes that the business has been inactive for a period of seven years.
  2. Voluntary deregistration when trading has ceased: The business itself may request deregistration if it can show that it has ceased to carry on business and has no assets or, because of the inadequacy of its assets, there is no reasonable probability of the business being liquidated. According to the South African Revenue Services (SARS), this effectively means that the company or close corporation is not doing any business nor has any assets or liabilities.

Related: Closing Deals In Africa – Keep It Flexible

If a business wishes to apply for voluntary deregistration, it is required to write a letter to the CIPC confirming that it is not carrying on business or is dormant and has no assets, or because of the inadequacy of its assets, that there is no reasonable probability of the close corporation being liquidated. This letter must be signed by each active member of the business.

The finalisation of deregistration is dependent on the statutory advertisement process which is three months. After completion of the deregistration process, the final deregistration notice will be posted.

When can your business be liquidated?

Liquidation is the process by which a company or close corporation effectively declares itself insolvent as it is unable to pay its debts. A business can undergo voluntary liquidation, where the owners of the business choose to voluntarily liquidate, or compulsory liquidation through actionby creditors.

Once the business has been placed under liquidation, either voluntarily or by creditors’ court application, the business will cease to carry on its business activities except in so far as may be required for the winding-up. A liquidator is furthermore appointed to sell all the assets, pay off creditors, divide any residue amongst the former shareholders, and then close the business.

The main legal consequences of ceasing to trade are contractual, shareholder, employee and tax obligations. Let’s consider the consequences of contractual obligations during deregistration and liquidation.

Related: Closing the Deal Is as Easy as Smiling

Contractual Obligation

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1The effects of deregistration:

The effect of deregistration is that the business is dissolved, consequently being deprived of its legal existence, and upon such deregistration all its property passes automatically into the ownership of the state as bona vacantia (ownerless goods). All rights and obligations that once vested in the entity are brought to an end, meaning that contacts are terminated, and any debt due is rendered unenforceable against the business.

In the event of voluntary deregistration, the company will have no contractual liabilities and no outstanding debts, as voluntary deregistration is only possible if the business has no assets or liabilities.

If the business is deregistered due to non-compliance and has outstanding debts, the only available option for a creditor is to apply to the CIPC for the restoration of the registration of the company. The CIPC requirements for restoration, however, are very onerous rendering a successful outcome to the application unlikely.

2The impact of liquidation:

When a business is liquidated, all contracts concluded with the business remain in effect. The liquidator is then tasked with making a decision, within a reasonable period of time, whether or not he or she intends to abide by the contract or terminate it, depending on what would be most beneficial to the creditors.

Should the liquidator elect to terminate the contract, the other contracting party has a monetary claim against the insolvent estate as a concurrent creditor (creditors who do not hold any security).

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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Franchisee Advice

Develop Digital Marketing Competency In 3 Simple Steps

Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.

Diana Albertyn

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As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.

“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.

Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.

Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.

Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:

1. Recruit digital natives and early adopters

As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.

“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.

“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”

2. Invest in training your team

“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.

Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.

3. Apply custom targeting techniques

The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.

Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.

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Franchisee Advice

How To Hire Skilled Workers For Your Franchise

Your staff run your business – you just have to show them how. This is why employing the best people for the job is essential.

Diana Albertyn

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According to the Franchise Association of South Africa (FASA) 2017 Franchisor Survey, one of the main challenges facing franchisees is finding the right staff.

“Staffing your franchise can be one of the most challenging parts of running a successful business. Without a great team of employees, you cannot run your business effectively,” says Saxon Marsden-Huggins, founder of WebRover.

These three tips could help you find the best employees for your franchise outlet:

1. Don’t hire in haste

While you may be rearing to go and keen to fill gaps to speed up profitability, research your candidates thoroughly.

Related: Insights On Recruitment That Could Affect Franchise Performance

As the job applications keep flowing into your inbox, keep in mind that not all of them qualify for the positions available – it may even be a small percent who are actually viable candidates. This is why your hiring process should include:

  • Taking the time to thoroughly screen CVs to develop a short list
  • Creating a carefully crafted list of interview questions
  • Setting aside adequate time for thorough interviews
  • Getting to know the candidates through a second round of interviews to confirm your choice.

Giving the hiring process dedication and attention will ensure you get the cream of the crop, contributing to the long-term success of your franchise.

2. Demonstrate support in the workplace

While you can instil the necessary skills into new recruits, it’s difficult to train for culture. This is why choosing the right employees from the beginning will make the rest of your franchise management system will run more smoothly.

“The manner by which you run the franchise will influence employee perceptions of the brand as well,” says Hireology’s Erin Borgerson. “Your staff must become ambassadors of your franchise system to attract the target consumer market.”

The best way to do this is encouraging staff to give you their honest feedback. Your commitment to creating and upholding a positive culture will result in increased loyalty from your current staff and a superior pool of applicants.

Related: 3 Things You Should Consider Before Buying Your First Franchise

3. Offer appealing incentives

When advancement opportunities are clearly communicated, staff is keen to hear how they can get there, as they have career goals of their own. Encouraging this ambition will draw good employees to your franchise.

“Helping employees understand the steps to advancement helps them to view their current job as an important part of a career with an upward path, not just a pay cheque for this week,” say financial reporting technology experts at Qvinci.

Performance bonuses and employee benefits incentivise staff’s efforts, therefore increasing their income alongside the profit of the business. “This serves to make employees a part of the business and not merely people ‘who work there’,” they explain.

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Franchisee Advice

3 Ways Communication Helps You Run Your Franchise Better

Managing your business as an independent owner may have been challenging at the beginning, but – as you’ve come to realise – the successful operation of a franchise network requires an extended set of skills.

Diana Albertyn

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“When it comes to a multi-location business such as a franchise, effective communication is vital,” says Dani Peleva, Managing Director at online marketing agency Local Fame. “So what happens when you’re struggling to connect with the franchise network you have in place?”

It may be time to upgrade your franchise management skills, because the success of your franchise network has a direct correlation to how you integrate feedback systems into your management processes.

Have a clear comprehension of the challenges your franchise encounters, keep an open chain of communication between yourself, franchisees and managers, and maintain regular interactions between everyone in the network. These are some of the most crucial aspects of successful franchise management:

1. Understand the challenges you face

A thorough understanding of your business requires dedication to regular and consistent groundwork for first-hand experience on how the day-to-day operations of the business are conducted.

Related: 3 Core Strategies For Building Successful Franchise Organisations

“Seeing and talking to the people that make your business will help you understand the challenges that franchisees face and the systems they need to drive higher profitability and growth,” says Rosie Niblock, Marketing and Communications Manager at Proactive Marketing.

“That way you can work more effectively to make improvements to franchise management systems logically and within the financial grasp of all franchisees.”

2. Get personal through regular visits

You never want your franchises to feel neglected. It’ll demoralise them and possibly drop sales, profits and their ability to keep the business running as you intended. Maintaining regular contact and sharing as much information as possible – when you can – fosters strong relations with your franchisees.

Empowerment through information and communication makes a difference in the business and helps franchisees make decisions in favour of the business and to make sure that they all pull in the same direction in terms of customer satisfaction, says Alan van der Westhuizen, executive manager of new business sales at Fournews, a 20-year-old franchise holding company for News Café, Krispy Kreme, Moyo, Brooklyn Brothers, Smooch, Cafe Fino and Go! outlets.

Ensure your response to these concerns is swift. “If not discussed they could fester ad create undesirable rumours,” says Niblock.

Related: How To Write An Operations Manual For Your Franchise

3. Create events for network collaboration

One of the most important aspects of managing your franchise is meeting with all your franchisees, at least annually. “Franchise conventions are almost certainly the biggest tool when it comes to building profitable engagement,” says Peleva. “They’re one of the most important things to focus on when you’re considering how to lead your franchise network.” According to her, a successfully attended and executed convention will let you:

  • Boost your network-wide productivity
  • Hugely increase your profitability
  • Drive passion for your brand

Communicating with your franchisees is the best way to identify problems, work towards solving them, and building a pleasant and fruitful relationship with your owners.

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