A warning against being ‘penny wise pound foolish’

A warning against being ‘penny wise pound foolish’

Are you a budding entrepreneur with big ideas? Maybe you’ve started that small business and it’s going well and you think the time is right to take it a step further by maybe franchising it? You’ve made some enquiries and find out that, according to the Regulations of the Consumer Protection Act’s reference to franchise companies, you will need to have a franchise agreement, operations/procedures manual and disclosure document in place before you start franchising. But all this costs a lot of money if you use bona-fide lawyers and accredited franchise consultants and you’re tempted into cutting corners by using someone at a much lower fee who makes themselves out to be a franchise specialist, because they claim to have worked for one or other franchise company in the industry and thus see themselves as franchise consultants.

The Franchise Association is aware, both inside its own organisation and out in the marketplace, of people with the very minimum of franchise experience, who offer to draft franchise agreements and operations manuals for businesses looking to franchise. This is both unethical and detrimental to the franchise sector which strives to uphold the highest level of international standards. No funder would entertain an application for funding from a franchise company if the relevant documents are not compliant and in keeping with the laws of the land.

The Franchise Association of South Africa sets down standards for ethical franchising in South Africa particularly with reference to franchise companies, by way of its Code of Ethics in conjunction with the requirements of the Regulations of the Consumer Protection Act.

Applications are invited from franchise companies to apply for accreditation but this process involves investing funds if the franchise company’s franchise agreement, operations/procedures manual and disclosure document are not compliant with the requirements of the CPA. Experienced franchise attorneys who are members as well as specialist franchise consultants are readily available to assist franchise companies to ensure that their company documents are compliant and won’t leave the franchise company open to risks.

Franchise attorneys spend years honing their craft and understand how to draft a suitable franchise agreement that would provide the necessary protection for all parties concerned – no franchise agreement is the same! Agreements vary from brand to brand and industry to industry and are developed according to the individual requirements of the franchise owner. Attorneys make sure that agreements would stand up to being challenged in a court of law.

Another area where specialist knowledge is required is in the development of an operations or training procedures manual for franchises. Professional franchise consultant members spend between 6 to 8 months developing a manual for a franchise brand and these services do not come cheap. Over the years, the Association received application documents from some franchises and after having them evaluated by qualified franchise attorneys, had to request the applicants to completely re-write the documents especially operations manuals comprising a paltry 9 pages where almost all of the required procedures of running the franchise were left out.

Owners and managers of franchise companies or prospective franchise companies must take heed and only contract the services of qualified specialists who are members of the association. Having properly developed documents and manuals in place provides peace of mind to the franchise owner as well as prospective franchisees and is an imperative for successful franchising. Please see the list of professionals who can assist.

However, employ the cheap services of an unqualified and inexperienced person and live with the consequences – at the first enquiry from a streetwise prospective franchisee, funder or landlord the unprofessional and non-compliant actions of the franchise owner in trying to cut corners and do things on the cheap would quickly be exposed. The franchisor would then be forced to employ professionals in any event to set down compliant documents and procedures and pay these costs once again so please be warned!