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INTRODUCTION
Within a relatively short period, modern-day franchising, more fully described as
"business format franchising", has evolved to become the most popular business
concept ever created.
So what exactly is franchising? A franchise is an agreement between the
franchisor (the grantor of the franchise) and its franchisees (those who acquire a
franchise), granting the franchisee the right to operate under the name of the
franchise and use its trademarks, know-how, methods and procedures. Moreover,
the franchisee stands to gain from initial and ongoing training and advice offered
by the franchisor, as well as having access to bulk deals and group marketing
campaigns.
WHAT IS A FRANCHISEE?
A franchisee (recipient of a franchise) is an individual with a burning desire to
succeed in a business of his own but reluctant to operate in isolation, more often
re-inventing the wheel in the process as it were. Franchisees should be: Capable of absorbing new concepts quickly.
Willing to follow the franchisor's blueprint to the letter.
Positive people-persons imbued with the necessary enthusiasm to market the
business and motivate staff.
Adequately resourced to meet the initial (capital investment) and ongoing
(working capital) financial requirements of the business.
Able to manage and control the business, and willing to drive the brand at local
level.
Prepared to co-operate with the franchisor's team as well as with fellow
franchisees, and play an active part in programmes offered by the network.
Determined to build the business into the best and most successful in the
territory.
Convinced of the merits of the franchise and the brand, and prepared to defend
both against possible attack by competitors or others.
WHAT IS A FRANCHISOR?
The franchisor is the grantor (giver) of the franchise. To be deserving of the title,
the franchisor should: Know every facet of the business and have a hands-on approach to problem
solving.
Be honest and forthright in all dealings.
franchised business, both during the time you are a franchisee and for a limited
period thereafter. Both clauses are necessary, but to protect their interests,
prospective franchisees should seek competent legal advice to ensure that the
clauses are fair and reasonable.
This is in fact the crux of the matter. Like it or not, even the fairest of franchise
agreements will contain clauses that could severely limit a franchisee's rights.
Such clauses are not necessarily bad, but it is essential that you understand their
meaning before you sign the agreement. Given the importance of the franchise
agreement, and the cost involved, the legal fee will be money well spent.
THE DISCLOSURE DOCUMENT
By doing your homework. You are entitled to expect that the disclosure
document contains all the information you need to make an informed decision
regarding the viability of the franchise offer. This would include the history of the
business and its office bearers, the activities of the franchise and the level of
investment you are expected to make, the extent support you can expect to
receive, comprehensive details regarding your legal and ongoing financial
obligations, the franchisors business references and a letter by its auditors.
Moreover, a list of existing franchisees, complete with contact details, as well as
a list of past franchisees who have left the network and why, should be included.
Armed with this information, you can carry out an in-depth investigation that,
once concluded, should leave you in no doubt regarding the bona fides of the
franchisor. Lastly, an important tip: make sure that your franchise agreement
contains a clear reference to the disclosure document. This way, should it
emerge at a later stage that the disclosure document was incomplete or less
than truthful, the franchise agreement could be set aside by a competent court.
Depending on the circumstances surrounding the case, it is even conceivable
that the franchisor could face fraud charges.
FINANCIAL CONSIDERATIONS
Payments which franchisees are expected to make to the franchisor can be
broken down into initial payments and ongoing payments. Amounts, payment
terms and formulae used to calculate the various fees should be explained fully
in the disclosure document.
FRANCHISE TRAINING
Specialised training to both franchisors and franchisees in the field of franchising
and business management is offered by a number of Franchise consulting
companies. For further information contact your nearest Seda branch
http://www.seda.org.za/MyBusiness/SEDAStart/Pages/Franchising.aspx