How to be a compliant franchisee

05/07/2018 08:00 | Start a business

How to be a compliant franchisee

At first glance, a franchise business looks much the same as any other business investment. Both give you the chance to be your own boss, achieve a healthier work/life balance, and allow you to do a job that youre passionate about. But in reality, there are many differences between starting an independent business from scratch and investing in a franchise business model.

The most significant difference is the limited amount of control a franchisee has over the business in comparison to a standard business owner. When you decide to join a franchise system, you benefit from a tried and tested business model with a proven track record of success. You dont have to reinvent the wheel. The business concept, infrastructure and system have all been developed for you.

However, this can come at a cost. As a franchisee, youll need to adhere to the rules set out in the franchise agreement. Decisions about elements of the business such as trading hours, the branding and the culture have all been made on your behalf. All you have to do is adhere to the rules so that consistency is achieved. This is important so that customers receive the same service regardless of which franchisee they deal with.

Franchisees - what to consider

Its this consistency that is so crucial to the success of a franchise business model. For you to succeed as a franchisee, it's essential that you understand the need to comply with the rules of the franchise. These can include:

1. Brand

The franchisor will have spent many years building the franchise brand and its reputation, so theyll want to protect it. Maintaining brand consistency is one of the critical elements to get right for a franchise to be successful. Consistency throughout the brand helps your franchisor to attract new franchisees and customers, so they need to keep control over your use of marketing materials, the name, and the logo.

To remain compliant, you'll need to ensure that the quality of your products and services are always first class. Youll also need to get authorisation before you launch any local marketing activity. To make it easier for you to conform to brand guidelines, some franchisors provide pre-approved, brand-compliant templates that you can use. This not only ensures that your material is on brand but also saves you the time and effort of producing collateral from scratch.

2. Stock

Theres usually a condition in the franchise agreement that states that you need to buy certain stock items from a particular supplier. This makes sure that the consistency of product offering is the same across all franchise locations. It also enables the franchisor to negotiate an agreement with the supplier to receive a rebate.

This rebate not only benefits the franchisor but is good for you too. By dictating which supplier you use, the franchisor can invest the reimbursement they receive back into maintaining and developing the franchise system. This can even lead to your royalty fee being reduced.

3. Marketing

Many different fees come as part of the franchise business model. One fee that is often overlooked by prospective franchisees is the marketing or advertising fee. This tends to be charged on a monthly basis and is calculated as a percentage of your gross sales.

This fee contributes to a shared marketing fund which finances large, national advertising campaigns. All franchisees benefit from this marketing activity as it raises awareness and profile of the overall brand. Most franchisors make it compulsory to contribute to the marketing pot, but if it's optional, then you can maintain your compliance by participating.

If you decide not to contribute to the fund, the marketing material will have to include statements such as only in participating stores. This weakens the power of any advertising and reduces the impact of the campaign for franchisees that have paid into the pot.

4. Conference attendance

This may be an area of compliance that you hadnt accounted for but attending conferences and meetings hosted by the franchisor is important for the overall franchise. Having all franchisees together to share stories, ideas and problems is extremely valuable for all concerned, and so they should be attended as a matter of priority.

By attending planned conferences, both you and the franchisor learn something. You get the chance to network with other franchisees and hear from those that are more experienced than yourself. You can then apply what youve learnt to your franchise on return from the conference. For the franchisor, its an opportunity to listen to any issues or areas for improvement first hand which is essential for the continued success of the franchise and future franchisee recruitment.

To comply in this area though you must be prepared to put your hand in your pocket. Conferences usually involve travel and an overnight stay so make sure you budget for these events accordingly.

5. Reporting

Reporting is an integral part of the franchise system and involves franchisees sharing information about their business with the franchisor on a weekly, monthly and annual basis.

Not only does this enable the franchisor to identify any performance issues throughout the network but it allows them to accurately calculate royalty and marketing fees (if based on gross sales).

The franchise agreement will detail the information that youre obliged to provide and the frequency which you have to share it with the franchisor. Failure to adhere to these terms could result in a breach of contract with penalties applied.

Have you got what it takes to be compliant?

Following the rules and maintaining franchise consistency is a crucial part of your role as a franchisee. But it's not for everyone. If you have a strong entrepreneurial spirit and find uniformity difficult, then starting an independent business may be more suitable for you.

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