What to look for when considering buying a franchise - The Franchise Package (Part III)

By Bendeta Gordon (Resident Expert on Franchising)

In considering buying a franchise or possibly franchising your business, we’ve identified that there are two key facets to examine carefully before making your decision. We addressed the first of these, the business model, in the July and August columns, and now it’s time to examine the second important facet, the franchise package.

The franchise package is the cement that holds together the fundamentals of a successful franchise. Without these elements that support this solid foundation, the relationship that is to be built between the franchisor and franchisee will quickly crumble.

Franchising is about compliance to a concept that works, and the franchise package goes a long way to ensuring this compliance.

The franchise package should include the following:

• Operations Manual;

• Legal Agreements – The Franchise Agreement;

• Disclosure Document;

• Recruitment and Selection Programmes;

• Training Programmes.

Operations Manual

It is essential that all the policies and procedures required to operate the business are laid out clearly and explicitly in an all-encompassing manual. This can be regarded as the ‘Bible’ for running the business. However, it is important that it is also user-friendly and becomes a working document. It is an integral part of ensuring that the franchisee business adheres to the standards that are set out, and is geared to conform accordingly in order to ensure success. In this way the franchisor is able to maintain the consistency and standardisation across franchises, and thus replicate the original successful business model. Furthermore, it is critical for both parties that the franchisee succeeds, and thus the Operations Manual becomes the blueprint for this success. (It should be remembered that the manual for a business format franchise is much more comprehensive than the manual that will be used for a product/trade name franchise.)

Legal Agreements

These agreements are necessary in order to govern the relationship between the franchisor and the franchisee. In order for the relationship to be a healthy one, the ground rules must be laid down first. The relationship has often been referred to as a marriage - the legal agreements of the marriage vows, marriage certificate and the ante nuptial agreements need to be in place before moving into a house together. These agreements must include specifics such as: agreement duration, rights granted, exclusivity rights, contracting parties, initial and ongoing obligations, set-up and ongoing relations, training, fee structure and payment, termination and breach conditions, advertising and fund requirements. The franchise agreement should be drafted once there is clarity on all the fundamental aspects, as it is important that it doesn’t contain anything vague or open to interpretation. It is also important that the terms set out in the agreement are non-negotiable, and apply equally to all franchisees.

Disclosure Document

This is a requirement of the Franchise Association of Southern Africa per their Code of Ethics and Business Practices. All potential franchisees should be provided with a disclosure document that outlines the pertinent aspects of the franchise and the required operational details, and it should also include pertinent details about the franchisor. The disclosure document should be accompanied by a financial certificate as well as a list of current and ex-franchisees. This document should be provided to the potential franchisee at least 14 days prior to signing a franchise agreement. The franchisor is also required to provide the franchisee with a seven-day cooling off period from the date of receiving the signed agreement.

Recruitment and Selection Programmes

In order to ensure the success of the partnership, the recruitment and selection of the appropriate people is a critical factor. One of the biggest mistakes that many franchisors make is to choose the wrong people. Clear criteria and guidelines should be outlined as to the profile of the prospective franchisees. Skills, education, personal attributes and financial resources are elements to consider when drawing up the criteria.

Training Programmes

Training programmes are an essential part of building the ‘house’ that the franchisor and franchisee are going to live in. They should be included as part of the franchise conversion process. This should not only be a critical factor at the outset where initial training should be provided, but it should also be an ongoing aspect of the relationship, as trends and technologies change. It is essential not only to set the standards in the beginning, but also to ensure that these standards are maintained for the duration of the relationship in order to continually strive for excellence. This training should be closely linked to the Operations Manual’s contents, and it is preferable that the requirements for training are part of the Legal Agreement. It is important that the training is based not only theoretical business management skills, but also has the practical components for on-the-job operational skills.

The franchise package and all its elements forms a fundamental part of franchising, and all aspects of it must be in place in order to establish and build on a successful and prosperous relationship between the franchisor and the franchisee.

Consider carefully, and once you’ve made your decision, may you prosper on your franchising journey!

dd