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The following
are examples of questions, together with the respective answers,
which we regularly encounter in the process of discussing the
non-specific prospects for franchising a business. This is
intended to provide some comfort and a better understanding of some
of the key issues when you become a Franchisor.
Q1. Am I responsible for the Franchisees making a success of
their business?
Answer:
Fundamentally you are not held responsible for their success,
however you must follow a discipline which we build into your
system to minimise that risk.
Q2. Can they pull down the signs and then compete with me at any
time?
Answer: Firstly, they cannot legally withdraw from your franchise
prior to Expiry of the term without your consent. You would
have recourse against them if they did.
Secondly, they will not be able to compete with you for some time
after leaving your system without your consent. Again, you
would have some recourse if they did.
Q3. How much money do I have to put into the advertising for the
group? And what will the Franchisees pay?
Answer: Advertising and Marketing costs for the group are normally
conducted through a separate 'Fund' which, you as Agent, look
after, something like a trust fund. In the design of your
operating systems we will determine your contribution model and
that may be nil contributions for you and all funds provided by the
Franchisees. We will recommend the rate of contribution by
your Franchisees.
By setting it up as a separate fund your exposure is minimal and
the Franchising Code of Conduct also specifies some particular
rules of operation.
Q4. How much will my royalties be?
Answer: When we conduct the Feasibility Study for your business
system, we will recommend the level of all fees and charges for the
new franchise structure. The term 'Royalties' is normally
associated with 'money for nothing', we prefer to call your ongoing
revenue stream 'Service Fees' to ensure that the fee is seen as a
payment for services provided.
Q5. How many years will my franchise run for?
Answer: The
term of the franchise will probably be broken down into several
smaller terms with options to renew. This can vary for some
retail business types but generally follows the same structure,
unless the property lease brings some challenges. Franchisees
then 'take up' their extra terms as the business progresses.
Q6. We supply all or most of our own products; can I be
guaranteed that they will only use my products?
Answer: The simple answer is yes; within the provisions of the law
relating to Trade Practice. You will be seen as a supplier
and we will need to build protection into the system to give you
the product control you need. There are some challenges, but they
can be dealt with.
Q7. How do I control the prices that they charge for goods or
services?
Answer: Again there are Trade Practice regulations that we will
have to work with but, fundamentally, you will be able to influence
prices to a maximum but not a minimum. It is illegal for you
to control the lowest price offer of other business people, even
with your Franchisees. We can provide a structure that will
deal with your strategic needs in this area.
Q8. Who is responsible for finding the new site for a new
store?
Answer: There are responsibilities for both you and the Franchisee
in this area. We would recommend that you, with our guidance,
develop a 'Site Selection' criteria and this is then provided to
new Franchisees to use as a benchmark. Ultimately it is
better for the Franchisee to select the site, providing they know
what to look for.
Q9. I have heard about the 'Code of Conduct' and how it protects
the Franchisee from the Franchisor; does it protect me from them
doing things that are against my franchise system?
Answer: The 'Code' is all about 'Fair Dealing' on all sides of
business, but is biased in favour of the Franchisee. As a
Franchisor, this simply means that you need to have a
well-structured system of operation and, more particularly, a very
strong Franchise Agreement to balance the risk more commercially.
Together with the lawyers, we can deal with this.
Your style of management will also need to be assessed by us and
systems developed to help you to minimise your exposure and keep
disputation to a minimum.
Q10. We have read that franchising has a high level of
litigation and disputes, is this true?
Answer: In
the past a small number of franchise groups have been
guilty of 'heavy' management tactics and making big promises that
they cannot keep, in terms of income, etc. This lead to some
serious difficulties and court cases.
Disputation levels in Australia today are remarkably low.
The Federal Governments' own survey into franchising in February
2000 stated that "the level of disputation is
insignificant". Serious disputes account for
approximately 0.6% of all Franchisees; this is six in every one
thousand!
The key is to have good systems and good documents with strong risk
management processes. We will help you to develop those.
Q11. How many Franchisees can I expect to have in my
group?
Answer: The first thing to appreciate is that this number is not
plucked out of the sky. When we conduct the Feasibility Study
we will recommend the number to you, based on our findings.
No one would want to see the market saturated beyond the
point where your Franchisees can make a good return on their
investment, so we need to understand the market opportunity for
both today and in the long term.
It is possible to provide for long term changes to the number and
we will consider that, if appropriate to your business.
Q12. Do Franchisees pay me a fee when they renew their
term?
Answer: It does depend on the particular system that is created,
however it is unusual today unless it is at the end of the full
term rather than the intermediary term renewals. At these
renewal points they are usually responsible for paying to have a
current version of the Franchise Agreement installed and the fees
are normally limited to the lawyer's costs and some administrative
recovery.
Q13. How much control do I have over the way that they operate
their franchise?
Answer: In your Franchise Agreement we will provide you with the
ability to determine the entire 'system of operation' in your
franchise and the capacity to make any reasonable changes at any
time. You will hold the controlling position to see that the
system is followed to your satisfaction, with opportunities to
regularly check up on their performance.
The key here is how you execute that power over your Franchisees
without putting them offside. The business is fundamentally
yours, however they have paid for the rights to use it for a while
within the provisions of the Franchise Agreement. Good
Franchisors are good people managers and do not use a dictatorial
style.
Q14. How do I keep my Franchisees in check without being there
all the time?
Answer: In your management systems you should have a performance
monitoring process that will enable you to closely watch the
results of all Franchisees in all key areas of activity, not just
financial results. We will put that system together for your
franchise to assist you to maintain optimum levels of performance
by all Franchisees, all of the time.
Q15. How do I go about selling the franchises, I have never done
that before?
Answer: One
of the things we can provide in our range of services is a
'Franchisee Recruitment Manual'. This is a comprehensive range of
forms, documents and checklists that together make up a system to
follow in the sale of a franchise.
Some Franchisors use the services of 'brokers' or other agencies to
find their Franchisees. We can train you to perform this task
should you choose to do it yourself. There is significantly
less risk for you if you do it yourself; once learned it is not
difficult.
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