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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

How Your Fast Food Franchise Can Attract Quality-Conscious Consumers

In a world where customers are becoming increasingly picky about where they dine and what they pick from a menu, it can be challenging to meet demands.

Diana Albertyn

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“Major foodborne illness incidents and outbreaks seem to be increasing. Even innocent or careless mistakes can sicken guests and ruin a restaurant’s reputation,” says Francine Shaw, President of Food Safety Training Solutions Inc. “Foodborne illnesses are 100% preventable and could be avoided if food service organisations adopted a food safety culture.”

Following a listeriosis scare in South Africa early in 2018, consumers have become more conscious about the foods they eat. Today’s customer is more concerned about the cleanliness of the food they buy over its taste.

“How food is sourced, prepared and served is uppermost with many diners demanding transparency when it comes to where they spend their hard-earned money.” – Franchise Association of South Africa (FASA)

The addition of more nutritious choices to your menu may be attracting health-conscious consumers, but it’s the quality of the regular – and perhaps popular – menu items that may win over consumers concerned with quality and not just calorie content.

Related: 3 Ways To Make Your Franchise ‘Instagrammable’

Here’s how you can ensure your customers are at ease with having their next meal at any of your franchises nationwide:

1. Ensure everyone knows why and how it’s done

Even with buy-in from the top-tier, your food safety efforts will be futile if not incorporated into every training touch point and may appear to be optional, when they should be a priority, says Chris Boyles, vice president for The Steritech Institute. When you have well-trained workers who understand the ‘why’ behind food-quality policies, momentum is built and a culture of food safety is created.

“Through encouraging genuine, comprehensive behavioural shifts, your franchise will protect the brand, safeguard employees and sustain a reduction in risk,” Boyles adds.

2. Build food-quality impetus across the network

As a company that serves food to the public you’re in a position of great responsibility. It’s important to pass this message down to your franchisees too. “Co-operation between the franchisee and their employees in this regard cannot be stressed enough,” says Marcel Strauss, Managing Executive of The Fish & Chip Co. – which was voted the top fish brand in 2012.

To get your franchisees on board with tightened food safety regulations, ensure they’re aware of the looming food-quality changes you’re planning on implementing and the ROI for your brand. This enables them to make budgetary allowance for certain credentials and technology you may require to meet certain standards of food safety.

Related: Why Your Franchise Brand Should Be Culturally Relevant

3. Tell your customers every chance you get

Give consumers a glimpse into your production process by including your quality mission statement on customer-facing materials such as your website, social media pages, profiles on external review sites and menus. “Use stories, images and videos to show your practices in action,” Katy Jones, Chief Marketing Officer at FoodLogiQ explains. “Take customers behind the scenes into internal discussions. Practice is the way you demonstrate your commitment.”

To incorporate quality and safety messaging into customer relations, you need collaboration between your food safety managers and marketing managers.

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Researching a Franchise

The Future Of Franchising Looks Smaller (And Fancier)

Franchises are adding smaller locations and reduced menu options, as niche markets emerge, to attract the customer of the future.

Diana Albertyn

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As the owner of a thriving franchise, you’re well aware of the fact that fluctuations in the world economy has both negative and positive effects on business. When it comes to your successful franchise, tough times could mean adopting new trends or seizing gaps, potentially resulting in a new franchise concept you wouldn’t have otherwise thought of.

“The buzz word in global franchising is ‘flexibility and adaptability’,” according to the Franchise Association of South Africa (FASA). “Whether a result of a need to inject some life into stagnant franchise brands or as a result of the new world order brought about by the recession, franchising is embracing alternative and options in a big way.”

Related: As Consumers’ Tastes Change Can Your Franchise Keep Up?

You can do this by either devising innovative areas to franchise or allowing more flexible ways for franchisees to operate to help with their bottom line. FASA has earmarked these as some of the biggest franchising trends in 2018 and beyond:

Smaller, more cost-effective franchise models

When franchisees don’t have high franchise fees and start-up costs to worry about, they can focus more on what customers want, and deliver. The added benefit of smaller spaces include having fewer employees and reasonable rental.

Among the new frontiers in franchising are the food court losing its legacy as the preferred setting for food franchises, as service stations increase in popularity in the industry. A number of brands – like Steers, Debonairs and Mugg & Bean On-the-Go outlets – are co-locating with major fuel retailers to create fully-integrated accessible centres.

Niche markets are offering one-of-a-kind franchises

“The opportunity to get in on the ground floor of a new franchise trend is also on the rise,” notes FASA. This could be offering a unique gourmet food experience in your outlets or a ‘green’ space of energy saving technology in your operations.

“Consumers have gained control of what they want,” says Morné Cronjé, head of franchising at FNB Business. “It is no longer about what you have on the menu, but how your product or service can be tailor-made to what a customer really wants.”

Founded just five years ago (2013), RocoMamas boasts over 60 franchise outlets, clearly responding to the essence of this trend –allowing consumers to build their own burgers without having to pay for items they’d rather leave out.

Related: Key Franchising Trends To Consider For 2018

Stay ahead of the game

For long-term success, franchisors who want to expand their business should start exploring beyond present circumstances and current predictions.

“2018 will no doubt bring its challenges, however for every challenge there is a window of opportunity to explore. We are advising franchisors to scrutinise these trends carefully, it can definitely give them a boost for 2018,” says Cronjé.

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Researching a Franchise

As Consumers’ Tastes Change Can Your Franchise Keep Up?

More of your customers are eating in, and if you’re not packaging, portioning and pricing your food accordingly, they’re heading to a retailer that does.

Diana Albertyn

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It’s generally believed that it’s cheaper to cook your own breakfast, lunch or supper than to go out and pay a much higher price for the same food in your fridge at home. But today’s consumer’s live fast-paced lifestyles – so food is becoming more about convenience.

31% of 6 022 middle-to-high income South African earners surveyed by BusinessTech, put eating out and entertainment at the top of their list of things they’re most willing to cut their spending on in 2018 to save money. Research by supermarket giant Pick n Pay correlates, reporting an increase in customers buying quality convenience food, not just to entertain at home, but for dining at home.

Related: Driving Your Business Growth Towards More Customers

Consumers are empowered by variety

You’ve heard about the ‘fast casual generation’, aka Millennials? They are demanding healthy, affordable eating experiences. But do you know how this affects the future of the food industry, and your business in particular – because they’re not the only ones adapting their lifestyles.

An increasing number of food brands and chefs are compelled to create complete ranges of new, convenient meal options that are not only packaged, portioned and precooked attractively, but affordable too.

The fastest growing sector of retail foodservice for the past four years has been the convenience store sector. Non-traditional avenues of distribution are growing, gobbling market share while establishing new patterns of consumption, price points, and customer loyalty.

Shoppers are becoming value-focused

A savvy franchise would acknowledge that although pre-packaged and pre-cooked convenience food isn’t a new trend among consumers and supermarkets, it is gaining popularity. “Some of the most notable trends in 2017 were an increasing shift to convenience foods as customers looked for both value and convenience,” says Pick ‘n Pay’s Head of Marketing, John Bradshaw.

Related: 5 Techniques To Leave Customers Grinning And Vowing To Return

Value for money and healthier food choices will continue to be top of the convenience food list for consumer in 2018, as more shoppers cut down on luxuries.

“We’ve seen significant growth in the number of customers looking for an easy way to enjoy a good meal without the cost of eating out,” says Bradshaw.

But he cautions that South African shoppers have always been value-focused, and while the most significant shift Pick ‘n Pay has seen is how all its shoppers, no matter what their income levels, are watching their budgets.

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