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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.

Franchise-failure-in-agreeements

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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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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