Managing a successful franchise is a complex and challenging venture. Issues range from franchisor-franchisee disputes, compliance obligations to recruitment and training. This article will highlight a few of the common issues that arise in managing a franchise and provide practical suggestions to combat them.
Managing a Franchise Network
An essential aspect of any successful franchise is maintaining the high-quality delivery of services and maintaining consistency across all locations. This is a challenging task as franchisees often join at various stages of the business. It is therefore important to ensure clear communication of standards. You should also aim to maintain transparency of decisions that may affect franchisees to help them understand and accept decisions made by management.
Franchisees should receive fair and equal treatment. It may be tempting to provide incentives such as discounts to franchisees with valuable business or industry experience to get them on board. However, you should avoid doing this to prevent other franchisees in the network from becoming bitter.
One of the most critical aspects of creating a successful franchise is recruitment. The number of franchisees in a franchise system is often a key measure of success. As a result, it is often tempting to grow the network quickly to increase revenue and brand recognition.
Adopt a balanced approach when it comes to recruitment, with a focus on quality over quantity. Recruiting poor quality franchisees can become troublesome, especially if they all fail at once or if it leads to litigation. This situation can be both stressful and financially draining on the entire franchise network.
Hiring an external consultant who has expertise in franchise recruitment can assist in the recruitment and training process. Often these consultants are paid on a commission basis, for example, 25% of the initial franchise fee. Although this can be costly, a lasting relationship with a franchisee and building a quality franchise network can pay dividends in the long run.
Training franchisees is crucial to assisting in their success and creating a lasting relationship. The initial training period is particularly important. Training is a critical period when franchisees learn everything necessary to run the business. Early losses in confidence can ruin the franchisor-franchisee relationship. It can be a very intimidating and overwhelming experience for independent franchisees if they are not provided with adequate support.
The operations manual is the main document that explains to the franchisee how to run the business. This document should provide the franchisee with all the necessary information to run the business and adhere to the requirements in the franchise agreement. This should be paired with a highly structured initial training period to give the franchisee the knowledge they need to be successful.
Putting yourself in the shoes of the franchisee can assist in structuring the content of training or training material. Including pictures, diagrams and videos can significantly assist franchisees in understanding the systems and processes. These materials should be refined and improved through franchisees’ feedback. Engaging an external consultant with expertise can also be a great way to get a fresh perspective and feedback on training materials and processes.
Developing a mentoring program where more established franchisees assist new ones can also be a great way to assist franchisees. It allows franchisees to build a network and feel supported by the franchise network.
Franchisor and Franchisee Compliance
Regulations have set out strict requirements for franchisors. Franchise obligations have become increasingly strict in recent times as a result of a number of high profile court cases. The Australian Competition and Consumer Commission (ACCC) has sought to enforce these compliance obligations against franchisors.
An example of these heightened compliance requirements is the introduction of legislation such as the Protecting Vulnerable Workers Act. This legislation looks to hold franchisors responsible for franchisees underpaying employees. It enforces a particularly high standard as it keeps franchisors accountable for the actions of franchisees.
Increasingly, regulations are placing more and more emphasis on the responsibility that franchisors have for their franchisees. You can take proactive steps to reduce your risk of infringement by educating franchisees on their legal obligations. For example, you could incorporate an employment law module into their training.
In any franchise system that is around for a number of years, franchisee-franchisor disputes are likely to occur. It is crucial that you prepare yourself for these situations. Do not simply assume you or the franchisees will not breach the franchise agreement. You can take steps to prevent disputes from arising by:
- ensuring quality recruitment;
- providing comprehensive training; and
- providing ongoing support to your network.
Proactively prevent conflict by having clear avenues of communication and providing support. Doing so will allow you to understand the issues affecting franchisees so that you can take steps to prevent disagreements from escalating.
You should develop an action plan to deal with issues that arise at the franchisee level. This plan will likely include taking steps to understand the causes of the franchisee’s problems and develop a plan which works towards the resolution of this issue.
These action plans may also involve decreasing fees or providing financial support in order to get them back on track. You should make sure that the arrangement is in writing, temporary and strictly confidential. This will show the franchisee that you care and that you are willing to work with them to achieve mutual success. Also, consider creating a formal procedure and policy to deal with employees and general complaints at the franchisee and franchisor level.
Running a successful franchise requires careful structuring and preparation. There are changing regulations that need to be carefully adhered to and obligations that need to be fulfilled. Ongoing support and training, as well as formal policies and procedures, can assist in avoiding disputes with franchisees. If a dispute arises, it is vital that you attend to the situation appropriately and provide the franchisee with the proper tools to remedy the situation. If you have any questions about expanding your franchise or about franchise regulations or structures, get in touch with LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
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