Are you giving franchisees the information they need?
Most franchisors provide their franchisees with financial information about the business and some marketing and background information at the signing up stage.
However, good franchisors continuously communicate with their franchisees to ensure all franchisees are:
- aware of all current and new policies and procedures;
- on track with their business; and
- operating a profitable business.
There are certain things franchisors do not often communicate to their franchisees, which is some of the essential requirements of operations, as listed below.
What you should tell franchisees when they buy a business:
1. Compliance will be enforced
No franchisor wants to be a pushover. Therefore, you must make it very clear to all franchisees that strict compliance with the franchise agreement and the system will be required and requested of each and every franchisee. Consequences of non-compliance must be spelt out clearly so that no one can be vague about what will happen if there is non-compliance.
Often franchisors chose not to do anything about minor breaches of the franchise agreement, and, in some cases, major breaches.
Although it may be warranted in many cases to forgive certain small deviations from the franchise agreement, any major breaches may potentially be very damaging to the brand.
You must remember that franchisees often talk amongst themselves and once someone gets away with a breach, then others will follow suit. Enforcement of compliance with the franchise agreement is the necessary evil that must not be taken lightly.
2. Working capital is essential
You should ensure that your franchisees have enough working capital to allow them to run their franchise efficiently and profitably. Consistent reminder every six months or so about the need for adequate amount of working capital is essential and should be incorporated into the normal communications between the head office and the franchisees.
3. Keep accounts in order
There is an obligation under most franchise agreements for franchisees to keep proper books of accounts.
However, there are also legal obligations on franchisees as business owners to keep certain financial information, including tax related information, employee details, GST figures and other information.
Franchisees can be audited by organisations such as the Australian Taxation Office or Fair Work Australia and any violations can negatively impact your brand.
Therefore, you must educate your franchisees in relation to what constitutes proper books of accounts, suggest courses that the franchisees may be required to undertake.
Franchisees should also utilise the services of a bookkeeper and/or an accountant. In most cases the fees payable by the franchisees are based on percentage of sales and therefore it is in your interest to keep your finger on the pulse in relation to the sales and other accounting information.
One suggestion is to have a centralised accounting system, which you have control over and access to so that all data can be audited at any time.
4. Territory compliance needs to be observed
If your franchise system is territory based, you should be very clear to your franchisees what can and cannot be done within their territories. It should be covered in the franchise agreement.
However, in addition to the franchise agreement, your policies and procedures should clearly cover instances when other franchisees of your system or you can operate in another franchisee’s territory.
You should also communicate to the franchisees instances when the franchisee’s territory can become non-exclusive, if applicable, or be taken away from them.
5. An annual business plan is vital
All good businesses have a business plan which is updated annually. It is no different for a franchised business. You should ask your franchisees to update their business plan. You should explain the benefits of having a business plan and actually adhering to it, as it would make sure your franchisees are clear in their business decisions and work towards increasing profitability.
6. Communication is crucial
The best relationships are those that have open and honest communication. Franchising is no different, as it is a business relationship of the franchisor and the franchisees.
You, as a franchisor, should ensure that there is clear and open communication with each and every franchisee. Franchisees should come to you first if any problems occur in their business or even in their personal lives which will affect their business.
You should ensure that you know of any problems within your system and be equipped to solve them. Franchisees should be educated not to be scared to approach the head office but to utilise the head office to their advantage and ensuring a trusting working relationship.
Prosperity of franchisors is directly related to the profitability of its franchisees. Nurturing that relationship and ensuring all issues are ironed out quickly are keys to success of any franchise system.