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Researching a Franchise

The Legal Requirements For Your Business’ LifeStage

Matching business legal requirements with business lifecycle is a key component of success.

Monisha Prem

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Just as the human lifecycle starts at birth and then progresses through infancy, childhood, puberty, adulthood and ageing, ending in death, so does the business lifecycle: Start-up, growth, maturity, decline, and rebirth or death. The same strategies and plans simply do not apply at the different stages of both life and business cycles.

And this includes legal strategy. What are the legal requirements at the different stages of a business cycle?

Start-up

Type of industry, nature of offering and delivery model are key inputs in determining legal structure at the outset. At birth it is also critical to determine exit strategies, including risk management and preparing for challenges and failure.

Private companies are the most common choice as they are suitable for both small and large companies and can be managed efficiently with no requirement for filing annual financial statements.

Related: 5 Different Types Of Businesses

Different types of entities include:

1Sole Proprietor and partnership:

Unincorporated (no registration formalities and compliance) and no distinction between the business and the owner. No, or very limited, growth opportunity.

The Sole Proprietor and Partnership do not exist as a separate entity, therefore legal rights and obligations (including business debts) of the business vest in the owner respectively or the partners collectively.

Sourcing funds for a sole proprietorship or partnership depends on the security that the individual owner or partners are able to provide.

2Trust:

A trustee or multiple trustees (no more than 20) set up the trust to hold assets and / or conduct business for the benefit of the trust beneficiaries. The trust must be registered with the Master of the High Court.

The advantages include that the assets of the trust belong to the trust alone (providing protection to trustees from creditors), the administration costs are less than those of a company or close corporation, and taxes are less complicated.

3Close Corporation (CC):

In terms of the Companies Act 71 of 2008 (the Companies Act), it is no longer possible to register a new CC. However, existing CCs will remain in place and can be converted to a company.

From a growth perspective, a CC is limited to ten members, each owning an agreed percentage of the business and collectively responsible for operations.

4Company:

Incorporated and regulated by the Companies Act, which encourages small business owners to register companies. A company can make shares available to the public (public company) or restrict transferability of shares to private owners only (private company).

CCs and Companies enjoy separate legal personalities and are separate to the members and shareholders. The business is conducted in the name of the CC or Company, and the assets and liabilities belong to the business, not the individual members.

Related: Business Plan Format Guide

Growth and Maturity

business-growth-and-maturity

Growth and maturity means more clients and cash flow, which in turn means more risk. To assess legal risk and prepare a legal blue-print to prevent or reduce potential losses, conduct a legal audit.

This assessment may consider the degree of exposures of risk in terms of:

  • Legal form and capital structure
  • Regulatory compliance
  • Contracts and policies
  • Corporate governance
  • Labour and HR
  • Social media
  • Intellectual property.

Decline and Death

For any given reason, many businesses fail and must shut down, whether by choice or compulsion. Different business types will have different requirements for shutting down, and if you planned correctly this process will be smoother.

Sole Proprietor and Partnership: As a sole proprietorship and partnership are not separate legal entities and unincorporated, they cease to exist when the owner or partners stop carrying on the business.

Related: Have You (Really) Put Your Business To The Test?

Trust: A trust will terminate by written agreement on the date set out by the founder, or either upon the achievement of the trust objective, or the realisation of the impossibility of achievement of the trust objective. On dissolution, the trust deed will dictate final distributions.

Company and CC: A company or CC can cease to operate either due to de-registration or liquidation.

A company or close corporation may be deregistered by the Companies and Intellectual Property Commission (CIPC) if it has not complied with certain requirements. The business can also voluntarily deregister when trading has ceased and it can show that it has no assets or liabilities.

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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Researching a Franchise

Maximise Your Social Media Reach This Holiday Season

Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.

Diana Albertyn

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It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?

You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.

Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.

Related: Why Your Business’ Social Media Marketing Strategy Is Probably Wrong

Know your customers well

The first step to attracting customers and getting them to complete a sale is understanding their customer journey.

“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, ‎VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.

The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.

Master social listening

You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?

“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”

Related: 10 Laws Of Social Media Marketing

Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.

Try something new

50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.

Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.

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Researching a Franchise

Selling Your First Franchise? Consider These Key Pointers

You’re ready to franchise your business, but who do you sell to and how? Your first few franchisees may be the hardest to acquire, but the process will be smoother if you get some basics right.

Diana Albertyn

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Business experience gained running your independent brand will come in handy, but looking for franchisees is a different ballgame. “We have to attract the right people in enough numbers to make the difference; and, the key to more leads is to have a multi-prong strategy to marketing,” says franchise strategist and expansion expert Lizette Pirtle.

Using media (social, or otherwise), trained experts in franchise sales, and keeping in mind that whoever you sell to will become an extension of your brand, are important considerations before selling your to first franchisee:

1. Use (all) media wisely

Website marketing, print advertising and social media are just some of the many different ways to attract potential owners to your franchise. But the most cost-effect of the three may be a ‘tweet’ or ‘post’ away, says former Director of Marketing at the International Franchise Association and owner of Burris Branding and Marketing, Jack Burris.

Related: To Buy Into A Franchise Or Purchase A Licence? 3 Factors To Consider

“Three out of four people using the Internet are either on Facebook or LinkedIn or Twitter or all of them. Take advantage of social media,” he says.

“There’s typically no cost to play in the space except for the time that you need to invest to build your brand with a social media presence.”

2. Seek out franchise coaches or brokers

While this is a more traditional method of making reliable franchise sales, it’s a great way to form lasting associations that will take you beyond your first few sales. “Using broker networks is a great way to supplement your own efforts. However, you must spend time developing relationships with these people if you want to get results,” advises Pirtle. “Don’t think that just listing your opportunity with them is sufficient.”

Franchise coaches and brokers have multiple options for potential franchisees, so to put yourself high on their list of consideration when prospects enquire, you have to form memorable relationships.

Related: 3 Factors To Focus On When Opening Your First Franchise

3. Always consider the bigger picture

Out of all the people your marketing efforts attract, always keep in mind that few will check all the boxes and compromising could cost you in the long run.

“The franchise relationship is a long-term one. If you’re going to be successful as a franchisor, you should start with the attitude that every franchisee will be someone who you’ll have to live with for years to come. And nowhere is this philosophy more important than when awarding your first franchise,” says Mark Siebert, CEO of the iFranchise Group, a franchise consulting organisation.

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Researching a Franchise

3 Factors To Focus On When Opening Your First Franchise

To become a successful franchisee, there’s lots more to learn. Take notes and this will be an adventure still with its challenges, but less stress.

Diana Albertyn

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Experts and those who’ve gone through the launching, managing and successful running of a franchise will tell you that owning a franchise can be just as risky as owning an independent small business – and it doesn’t get easier after signing on the dotted line. But that doesn’t mean it isn’t worth giving franchising a shot.

“The hardest part of being a franchisee is learning and adopting all the processes that exist in the brand you’re buying into. But it’s important that a customer can walk into any franchisee’s property across the country and have the exact same experience,” says Jeff Chew, Pizza Factory franchisee.

With that in mind, remember the financial, emotional and physical investment you’ve made in this new venture and let it fuel your success, from before you even serve your first customer

1. Financial and intellectual wealth

Don’t buy into a franchise where you might be undercapitalised, advises Paul Durant, a Junk King franchisee.

Related: Expansion Funding Options For Your Growing Business

Keep in mind that running a new business isn’t challenging only mentally strenuous, but financially too, because you’re not always immediately profitable. Ensure you have enough runway for a few years at a loss or minimal profit.

“I did not do a thorough job in my initial research and discovery calls. I used a lot of my own assumptions and luckily they were fairly close,” recalls Durant.

“I would, however, suggest that you ask very detailed questions during the discovery process and listen carefully to the responses. Often what is not said is equally as important as what is said.”

2. Remember the purpose of the manual

The point of buying into the concept you’ve chosen is to ensure success based on a roadmap that’s already been drawn out for you. Straying from this plan unnecessarily is a shortcut to failure. This doesn’t mean you cannot make changes, but always ensure your growth is where it needs to be by following the system completely.

Franchisee Mark Arduino thought he was taking the advice he’d been given countless times: Just follow the system. But he quickly realised he wasn’t when all the franchise-specific training he’d been through was forgotten in favour of easier shortcuts.

“Then I realised my mistake. I came to see that it’s very user friendly. I’m sorry I didn’t use it from the start!” he says.

Related: How To Choose The Right Finance For Your Business Or Property Portfolio Expansion

If you think you have a better way of doing something detailed in the franchisee manual, do your research. Your decision should follow a discussion with your franchisor, then align to the business plan.

3. Learn at every opportunity

It’s great that you have previous experience in business. It’s a huge bonus that could put you ahead of other franchisees in your network. But, always be willing to learn and put your hand up or open a book if you’re not sure. A vast business background doesn’t guarantee automatic success as a franchisee, so be open to learning from others.

“I have learned more from two of the franchisees in my area than I could ever have imagined and I owe my early success in large part to their willingness to help,” says Jeff Steele, a CMIT Solutions franchisee.

It may sometimes seem like you can do it all on your own, but even when you feel you can do anything, you cannot do everything. That’s why you joined a franchise that (hopefully) offers good support structure.

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