Part 1: What does the franchisor expect from the franchisee?
When entering into a franchise relationship, both parties – the franchisor and franchisee – have expectations of the other. It is only fair for each party to assume that the other will conduct the relationship in a fair and ethical manner, but what does this actually mean?
The franchise relationship is governed by prevailing and relevant legislation as well as the franchise agreement, and from the outset, each party hopefully understands their roles and responsibilities. It can be said that because the franchise agreement is drafted and initiated by the franchisor, an unequal distribution of power often exists which can result in opportunistic or unscrupulous behavior by the franchisor. In other instances, dubious or unethical behaviour by franchisees can result in tension and dispute.
But it goes beyond all this as common sense also comes into play. It is not always about what is in the agreement as the expectations of each party should also be considered. The expectations of both parties should be established and discussed from the outset, i.e. before either party signs the agreement and any unrealistic or untenable expectations addressed. From there it is important that the parties manage the expectations to avoid disappointment.
What does the franchisor expect from the franchisee?
1. That the prospective or new franchisee has done his / her “homework”
Even though there are many ethical franchisors, providing prospective franchisees with disclosure documents and financial projections, too many prospects do not do their homework and thoroughly investigate the franchise opportunity. A franchisee could be investing millions of Rands into the franchise but then does not take the time and effort to ensure that the business offering is sound and that the promises and commitments made by the franchisor are lived up to.
Franchisees must request the disclosure document from the franchisor if one is not duly provided. This document contains a wealth of information from who the franchisor is as well as the key management staff in the business, how many franchisees does the franchise system have (and just as importantly, how many have closed or been defranchised in the last three years), financial information pertaining to initial investment and what the franchisee can expect to achieve in terms of margins, payback and profits, to any / all suppliers and service providers that the franchisee will be required to do business with.
One of the key points raised in the disclosure document is the advice that the prospect should contact existing and past franchisees to enquire about their relationship with the franchisor and whether or not it lived up to expectations and promises made. This exercise can provide invaluable information to the prospect and could even influence his / her decision to become a franchisee, yet so many prospects do not bother with it.
By the time the prospect signs the franchise agreement with the franchisor, the franchisor expects that he / she has done sufficient due diligence to make an informed decision. If the prospect has done so, this tends to set a good tone for the future relationship of the parties as the franchisee clearly understands what he / she is getting into.
2. A commitment to honouring the franchise agreement
A thorough review of the franchise agreement – and even advice sought from an attorney – once again shows the franchisor that the prospect has investigated the franchise opportunity and is aware of what is expected of him / her as well as understanding the roles and responsibilities of the franchisor. When the franchise agreement is signed by the parties, the franchisor takes it on good faith that the franchisee intends honouring the agreement.
So often once the agreement is signed, it is filed away, and the franchisee may forget what he / she signed up for. It is a good idea to remind him / herself of the commitment from time to time.
Furthermore, in addition to the franchise agreement, there are many laws, regulations, and statutory requirements, that as a business owner, a franchisee is expected to comply with. The franchisor may provide some guidelines in this regard, but it is the franchisee’s responsibility to be aware of his / her responsibilities in this regard and ensure legal compliance. Failure to do so can have a detrimental -and ripple – effect on the brand and all franchisees in the network.
3. Communication through the correct channels
Most franchisors have a support network set up in the business – a hierarchy or sorts – and expect franchisees to respect the hierarchy and reporting channel. The franchisor may have a field service consultant (FSC) or field advisor responsible for first line support and interaction with the franchisees and all communication should be addressed to this person first. Should the first line support person be unable or unwilling to assist, then an escalation process exists for franchisees to take the matter further.
Many franchisees disrespect the chain of command, going around the FSC and directly to the Operations Manager (or equivalent) or even directly to the franchisor. This is unfair on all concerned as the FSC should be given the opportunity to address the franchisee’s issues.
In addition to this, so many franchisees complain about issues they are having in the business with other franchisees, or even with suppliers, instead of taking the issue to franchisor. This approach allows the aggrieved franchisee to vent but does nothing for the relationship with the franchisor and in fact, can be quite detrimental to it.
4. Commitment and hard work to ensure business success
Operating within a franchised business structure does not guarantee success. The franchisor expects that the franchisee dedicates his / her time to setting up (initially) and growing the business. Although the franchisor and its team are available to provide support, assistance and ongoing training, the franchisee must still understand that it is only through his / her own efforts and dedication that the business can flourish and be profitable.
5. Paying the bills on time
Paying bills on time is probably one of the most important aspects of building a long-term and respectful relationship with the various parties involved in the franchise. This encompasses the franchisor, suppliers, service providers and any other party that the network deals with.
Franchisees are expected to put adequate administration systems and processes in place to ensure that this aspect of the business is managed effectively and that everyone is paid when they should be. So often when a franchisee is struggling with cash flow, some of the suppliers or service providers are made to wait for money owed to them. The situation is worsened when the franchisee starts avoiding phone calls from these suppliers.
It is advisable – and ethical – to inform a supplier or service provider of your predicament and stay in touch to keep them apprised of the situation. They will be far more accommodating than if you avoid them. Furthermore, if there are several franchisees treating the suppliers and service providers in the same way, this does not bode well for that supplier’s relationship with the group as a whole and other franchisees may be negatively impacted by having their terms of supply changed as well.