What Support Can You Expect From The Franchisor?

As a franchisor, it's hard to forget how much the success of the franchisor's business is dependent on the success of their franchisees. Well supported franchisees will become strong advocates for partnering with the franchisor brand. Word of mouth endorsement from franchisees is often a successful form of marketing to entice new franchisees to join the franchise network. A comprehensive franchisor support system will contribute to a successful franchisor and franchisee relationship. Whether a franchisee is close to making a decision to invest in a particular franchise or is still at the early comparison stage, a focus on the level of support provided by the franchisor should be an important consideration of any franchisee due diligence process. The most important thing a franchisee should do in the investigation process of any franchise opportunity is to talk with existing franchisees of the system. The franchisee needs to carefully explore the extent of their commitment and preparedness to operate the business after the support is delivered by the franchisor. The extent of franchisee support will vary and will largely depend on the size of the franchisor, the financial capabilities of the franchisor and the culture of the franchise system. Every franchisor will boast of the support provided within the system to franchisees. The franchisor should be acting in good faith. The franchise agreement and the Franchising Code of Conduct impose good faith obligations on the franchisor. The franchisor should act honestly and cooperate with the franchisees to achieve the purpose and give effect to the franchise agreement. Franchisees and franchisors often have different views of what constitutes a good level of support. Franchisees sometimes find that the support promised is not delivered, does not add value to their businesses or does not meet their expectations. A real or perceived lack of support is one of the main contributing factors of franchisee dissatisfaction. While franchisors may have good intentions, they often underestimate the amount and cost of support required by franchisees. It is important for franchisees to understand that they will be an independent business operating under a license that requires franchisee to meet the franchisor’s standards. Therefore, the franchisee is not limited to receiving support only from the franchisor, and should always consider utilising alternative types of support in addition to the support received from the franchise system and keep an open mind to such alternative sources of professional advice. There are some obvious forms of support provided by a franchisor — some of the key elements include: Real estate and site selection Location! Location! Location! This is a significant aspect to a franchise business and determines whether the franchisee will be successful or not. A good franchisor will have a well-defined processes for assessing the suitability of sites and/or territories for the particular business. Factors taken into account may include passing traffic, surrounding competitive or complementary businesses and rental costs. The franchisee will need to determine the extent of the franchisor’s role in establishing the franchise location. Does the franchisor assist with site selection, landlord negotiation, permits/approvals, construction plans and contractor management? It is important to keep in mind that just because a franchisor approves the site and provides such support, it does not mean they are providing the franchisee with any assurances that the franchise business will be successful. Alternatively, the franchise may be a turn-key franchise whereby the franchisor will deliver a ready to operate franchise, which may be attractive for some franchisees. Getting the balance of support right will determine the level of the franchisee confidence and their ease of entry into the franchise business. Training systems The franchisee should carefully consider the structure and content of the training programs on offer by the franchisor and evaluate what initial training is provided and over what time frame and determine the competencies a franchisee should develop by the end of the training period. The franchisee should be asking the franchisor, during the initial training period, the following questions, namely: does the franchisor make available someone from head office to assist the franchisee when the franchise commences trading? How long do they stay? How long have they been with the company and what is their level of experience? It is important that the franchisee is assured that the ongoing training will be sufficient to assist in the growth and to maximise the asset value of the business. The franchise should also consider the extent of the franchisor ongoing coaching and support in areas such as recruitment, finances, marketing and customer support? Are there regular knowledge sharing opportunities for the franchisee to learn from other, more experienced franchisees? Is online learning being utilised to facilitate ongoing, easily accessible training and information? It is important for the franchisee to understand the type and amount of continuing support they will receive from the franchisor. Clearly, in the better franchise systems, training by the franchisor is an ongoing activity for franchisees to ensure operating and customer service standards are being maintained. The ongoing training to improve franchisee performance creates benefits for the franchisee and franchisor. Business operations How often can franchisees expect a visit from the franchisor field staff and what happens when they come? Consider what mechanisms are in place to enable field staff to help the franchisee to succeed. What information or reports are reviewed on each visit and what is the process for making the necessary changes and improvements? The franchisee should be able to extract the maximum value from the field and operations teams to help the franchisee to grow a better and more valuable business. Ask the franchisor to explain how franchisee ideas are assessed and implemented in individual operations and throughout the network. Speak to other franchisees about their experience in this regard. The best franchise systems are focused on helping their franchisees become better business people through education and training. Advertising and marketing Does the franchise system portray a clear, consistent brand image? Consider how the franchisee will be supported in tapping into that image and leveraging it for your own business. Most franchisors will require the franchisee to contribute to a marketing fund/levy that will be used to support the marketing programs for the system. The minimum amount the franchisee will be required to invest in marketing and advertising will be specified in the disclosure document and franchise agreement. You should engage a franchise lawyer to explain these to you. Check what specific support will be provided in terms of local area marketing and whether this is detailed in the franchise agreement. The franchisee should familiarise itself with the workings of the process. Financial reporting Highly developed point-of-sale systems are essential for any successful franchise system, which are linked to management reporting processes that measure and benchmark key performance indicators across the network. The better franchisors publish the entire network’s store by store profit and loss figures and educate their franchisees on how to analyse this data and their performance relative to others in the group. The franchisee should investigate and satisfy itself and understand what information the franchisor supplies to the franchisee with and at what intervals. The franchisee should clarify with the franchisor of how the franchisor will assist the franchisee in understanding, analysing and applying this data to growing the franchisee’s business. Enforcement of standards Look into the franchisor’s role in enforcing the operating standards and presentation of the network upon every franchisee. A tolerance for continuing under performance and turning a blind eye to non-compliance reflects badly on their franchise and ultimately its value. As part of the franchisee assessment of the franchise system it is important to understand the extent of the franchisor’s enforcement measures of compliance to standards by its franchisees to ensure the system/network is not compromised. The greater the extent of the franchisor enforcement measures in place is an indication that the system is well regulated and maintained ensuring a quality franchise network. The above is indicative list of franchisee considerations as a starting point for the franchisee to ensure that they conduct a thorough review/due diligence of the franchise network in the context of franchisee support provided by the franchisor. Contact Rostom Manookian, 0416 716 960 or email: rostom@manookiansolicitors.com to discuss your plans and how Manookian Solicitors can assist you with your plans. Manookian Solicitors has the industry expertise to assist franchisees and provide the guidance and support during the investigative process and advise franchisees on compliance issues and franchise documentation. We offer fixed fee legal services to ensure clarify and transparency with no surprises.