The Fundamentals Of Ethical Franchising - Part 2: Practice

In The Fundamentals Of Ethical Franchising - Part 1: Elements, the basic elements of ethical franchising were explored. But how does a franchisor implement ethics in the real world? Let’s look at what this means in practice.

Related: What Does It Take To Be A Franchisor?


Establishing A Tried & Tested System

For a business to be successful at franchising, the main factor would be to have franchisees themselves being successful. In other words, franchisees are operating the business with minimal disruptions and making enough profit to be sufficiently happy. But this doesn’t happen without any testing from the franchisor to identify best practices and eliminate bugs within the system.

Before even offering the franchise opportunity, a good method for franchisors to ensure the system is optimized is to launch a pilot to test the franchise protoptype model and have it operate for at least 12 months, in a new location. This allows the franchisor to see things from the perspective of the franchisee and the potential pitfalls that may appear.

Without having any pilot for franchise operations, prospective franchisees will never know whether the business is a one hit wonder or possesses a proven, sustainable model. Franchisors need to prove the system works and not expect to sell a broken or unproven idea because prospective franchisees can spot a shady deal when they see one.

Ensuring Ease Of Replicability

In most cases, franchising allows franchisees to enter an industry or sector in which they do not have related experience or skills. This is due to one simple reason — knowledge transfer and training is provided by the franchisor. From operational issues to marketing and management, franchisors need to identify the necessary resources for the efficient and effective replication of the original business. Which is why having a pilot for the franchise prototype model is so important.

Two key aspects in this area revolves around personnel involvement and timeline allocation from the franchisor. More than just having a plan, franchisors need to know exactly who (from the franchise organization) will be involved, and when/where they will be involved.

If a franchisor doesn’t have this figured out, they could find franchisees constantly asking for help or trying to clarify doubts. In worse situations, the franchisee could experience a delay in the opening of their franchise business, or even implementing the wrong operational techniques.

Delivering Accuracy Of Information

There is a misconception among some prospective franchisees that franchising entails a turnkey arrangement. While this may be the case for some franchises, it is not a default option. Needless to say, franchisors need to be explicit in terms of the roles and responsibilities expected and required of each party in a franchise relationship.

Furthermore, as in the case with considerations before taking up any investments, prospective franchisees will want to know how much profit the business can make, and the costs associated with it.

One of the most commonly overlooked cost factors of setting up a business is the expenses for securing the business location, which will require the upfront payment of a significant amount (for rental deposit and advance). Whether franchisors choose to include or exclude this in the initial investment requirements, it is their responsibility to highlight this fact to prospective franchisees.

While for potential profit, any financial projections presented to prospective franchisees must be realistically achievable. More importantly, the franchisor themselves must have achieved those sales performance figures put forward to be able to back up their claims.

Implementing A Fair Business Arrangement

While the franchise agreement may be skewed to the advantage of franchisors, it is the duty of every franchisor to highlight to prospective franchisees to have the franchise agreement reviewed by engaging their own franchise specialist laywer.

That way, even with all the legal jargon, the prospective franchisee will be fully aware of all the terms and conditions they will be committing themselves to.

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