One thing the Franchise Association of South Africa fails to understand is why some franchisees approach the Association to complain against a franchisor after they’ve lost all their money?
The Association was established in 1979 to promote ethical franchising and to arm potential franchisees with all the relevant information and issues for careful consideration BEFORE they invest in a franchise – yet it seems the advice is not being heeded by some.
It seems some franchisees blindly buy a franchised outlet without ensuring that the company is an accredited member of the Association. Unfortunately, frequently things go wrong and the franchisee’s investment turns sour for various reasons. Then when they are in financial difficulties they start doing research – which they should have done before buying the franchise, find the Association’s website and then lodge complaints thinking the Association will be able to help them recover their investment.
The issue here is that these problems usually relate to franchise companies that are not accredited members of the Association and for this reason, the Association cannot deal with these complaints. Franchisees that have lost their money to unscrupulous franchisors in this way, understandably lash out against the Association being unable to recover their money and this is the reason why the Association has been lobbying government to set down an industry code for franchising in South Africa for many years.
So what steps can potential franchisees take to safeguard their investment in a franchised business?
Consider the application process for franchise companies applying for accreditation – the brand’s franchise agreement, disclosure document, manuals, financial statements and various other documents are to be submitted to the Association for scrutiny on application. These documents are sent to an experienced franchise attorney who evaluates the franchise agreement and disclosure document in particular for compliance with the Consumer Protection Act’s Regulations for franchising in South Africa. Furthermore, applicant companies must also provide a written undertaking that they would abide by the Association’s Code of Ethics.
Documents that are not compliant are rejected and must be amended or re-written to ensure compliance – the Association is the only industry body that conducts these evaluations. Accreditation, therefore, is not a simple ‘pay and join’ process but a thorough evaluation of the applicant company’s documentation and other information.
The Code of Ethics is the basis on which the Association deals with complaints from potential or existing franchisees and its free dispute resolution or mediation services to members are offered in relation to alleged transgressions of the Code.
- Therefore buying a franchise from an accredited franchisor member of the Association ensures peace of mind and in the event of a dispute, access to free dispute resolution services. Due to public demand, the Association now offers dispute resolution services to non-members at a fee of R30,000 excluding VAT in relation to the relevant franchisor’s compliance with the Consumer Protection Act’s Regulations.
- Do a thorough investigation of the brand – the most important step a potential franchisee could take is to speak to the existing franchisees of the business you wish to invest in. There are various questions that a potential franchisee should ask existing franchisees but of crucial importance is to find out whether existing franchisees are keen to reinvest in the same brand should additional outlets be offered to them by the franchisor. This is always a sign that existing franchisees are satisfied with the return on their investment and that the brand, in general, is performing as expected.
- Ensure that the product or service being offered by the franchise company is something you as the potential franchisee is passionate about. There is nothing more rewarding than turning your passion into a business or making a living from things that you are passionate about.
- Discuss your intentions with your family to ensure that they are supportive of your planned investment. Establishing a new business or buying an existing business and setting it on a new course, requires many hours of dedicated work and attention which could take you away from spending time with your family. If they are understanding and supportive or even prepared to help you in the business, you would probably have to deal with much less personal friction and stress. Remember that old saying – ‘far away from your business means close to your losses’.
- Consider the agreements you are required to sign i.e. lease agreement, franchise agreement, surety, loan agreements and so on by way of negotiating a fee with a trusted advisor or attorney who could assist you with any issues of concern before you sign on the dotted line. Speak to an accountant or financial expert to obtain their opinion about your planned investment including the franchise manager of the funder you intend to do business with.
- For new outlets, obtain market research documents from the franchisor regarding the intended location of the business substantiating the decision to open an outlet in the relevant location. Consider future developments in the area that could negatively impact on the sales or turnover of the business; for example, if the business is located in an existing shopping center, is the landlord likely to revamp the center in the near future? For businesses located in so-called strip malls or high street locations, ascertain whether there are plans afoot to widen the road or other road works that could drive feet away from the location. Make sure as a potential franchisee you understand who the brand’s direct and indirect competitors are and take a view on their possible entry into the local market if they are not already trading in the area.
- Potential franchisees that are not willing to take instructions and follow another person’s business model would probably not be successful franchisees so ensure you as a potential franchisee are willing to ‘paint by numbers’. If you are entrepreneurial then you probably should start your own franchise company rather than be a franchisee as you may find it difficult to manage your business by another persons’ book.
- Successful franchisees usually are individuals who enjoy dealing with details and give endless attention to every aspect of the franchised outlet so if you are a ‘bigger picture’ person buying into a franchised brand could be cause for frustration rather than financial success.
Considering the useful information published on the Association’s website on this topic together with many other professional service provider’s online services, there really is no excuse for a franchisee to make a bad investment in today’s online environment and he or she only has themselves to blame.