Franchising is a complex, specialised, regulated industry. Before charging into the franchising arena, deliberation and research should be carried out prior to embarking into franchising. Professional franchising specialists conduct client feasibility studies to evaluate the franchising proposition for their business client. Most importantly, a properly executed franchise feasibility study should ascertain whether both the franchisee and the franchisor can profit from the venture.
Judging by recent franchising horror stories, it is apparent that some franchise systems are so flawed that franchisees are unable to return any profit.
A responsible franchising consultant will not take a business down the franchising path unless they are confident and have documented evidence in the form of a franchising feasibility report, that a franchisee and franchisor can profit from franchising.
Some of the biggest franchises are the worst culprits. They focus on turnover and sales as opposed to the bottom line. 711 is an example of this. I regularly see flawed large established systems where franchisees are unable to make a profit.
Franchise systems need to be reviewed on a regular basis. We recommend annual franchise reviews to analyse what's working well and areas that may need tweaking. An objective, professional opinion is always worthwhile.
In best practice franchise systems, franchise agreements do not change from franchisee to franchisee. The agreements remain unchanged and consistent. The reality is that in many smaller franchise systems, a franchisor in an effort to secure a sale, will amend the franchise agreement. This can result in each franchisee having a slightly different franchise agreement. The logistics of a franchisor being able to recall every different agreement is impractical and confusing and should be avoided. I have even seen franchise agreements where preferential fee arrangements have been offered to a franchisee.
Inconsistency can also occur when a franchisor treats franchisees differently in terms of support or benefits and this can extend to turning a blind eye to compliance matters and breaches of the system.
In the larger franchise systems a reduced level of support can arise due to personality clashes between a franchisee and their franchise relationship manager. This type of situation can result in a franchisee being disadvantaged and having their trading results suffer as a consequence. Franchisor senior management need to manage this situation closely.
Franchisors who wish to be every franchisee's 'mate' have problems when needing to enforce compliance to the system. Franchisees are protected by their franchisor enforcing compliance to the system. It is the franchisor's obligation to protect the brand and the system on behalf of the franchisees. Typical problem area examples are; when a franchisee elects to supply non approved products or services. This can have repurcussions with safety issues, general quality control issues, and brand control. If one franchisee gets away with supplying non approved items by the franchisor turning a blind eye, the situation can deteriorate as other franchisees may choose to follow. Compliance should be enforced firmly but fairly by a franchisor. This can be challenging for the franchisor who thinks he's everyone's mate.
Some franchisors are so desperate to achieve a quick sale they compromise on the calibre of the franchise candidate. This process is doomed to failure. The upfront franchise fee should be regarded as the icing on the cake for a franchisor. The real income is in ongoing royalties and product distribution. By appointing the wrong franchisee, the long term income potential can be impacted. The wrong franchisee can affect the other franchisees in terms of morale, brand protection and mental strain on the franchisor. Franchisees should be handpicked and appointed with due diligence. This is a long term relationship that can, with the right franchisee, prove to be profitable and rewarding OR with the wrong franchisee, costly, time consuming and draining.
This applies to both franchisors and franchisees. A jaded franchisor is a nightmare situation for a franchise. Research and development will be nonexistent; support and communication will be forgotten and it is very possible that the franchisor's financial situation will be declining at the same rate as their enthusiasm. A franchisor in this situation with existing franchisees needs to seek expert advice to consider their exit strategy.
Similarly, some franchisees find that they do not thrive in a franchising situation. Sometimes it's because the franchise system is lacking and other times it's because they are not franchisee material. The constructive approach is to firstly discuss the matter with the franchisor with a view to selling the business.
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