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Franchise Agreements

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Advice on Franchising Your Business

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Franchising & Franchise Law in South Africa

What is Franchising?

Franchising is a method of expanding a business by distributing products or services under one trade name and brand.

The business that starts the franchise, the franchisor, will license its trade name and operating methods to the franchisee to distribute the product or services in accordance with terms and regulation as set forth in the franchise agreement.

Franchising is an alternative to building chain stores. Chain stores are groups of retail stores from the same general field of business and operate under the same management.

Some foreign countries have explicit federal laws governing franchising. Australia, Canada, France and Brazil have significant disclosure laws.

Where there are no specific “franchise” laws, franchising is mostly considered as an ordinary method of economic activity which will be subject to ordinary commercial legislation of such country.

Starting a Franchise

A business that has set out its systems and procedures, and is trading profitably, may choose to start a franchise.

Successful franchising is difficult but if you want to expand your business to its' maximum size and profitability, you may wish to franchise your business. If you are the franchisor you may benefit from additional profits and you may retain control over your business system.

Becoming a franchisor is an expensive venture and you will need a franchise attorney and a franchise consultant to handle all intellectual property matters, including trademarks and copyright, as well as licensing and franchise agreements.

How to Franchise your Business...

1. It is if utmost importance to register the franchise trade name and trademark, logo and slogan with the help of a specialist trademark attorney.
2. The next step would be to open a second or third outlet. Having multiple operating stores will help you learn more about the types of locations, procedures and advertising suitable for your business. This will also develop your track record giving your company credibility.
3. Create specific structures for every aspect of your business system because this is what you are selling as a franchisor, a working business structure that guarantees success.
4. Put together a very training program for new franchisees. The franchisee must know your systems and procedures. Franchising is all about sticking to the same system.
5. You will have to setup all the legal documents required to start a franchise, including franchise agreements and licensing with your specialist franchise attorney.
6. Prepare a Disclosure Document. The Disclosure Document should typically contain the company history, owners and officers’ backgrounds, required investment breakdown, financial statements, main aspects in the franchise agreement, existing franchisee’s information, and litigation history.
7. The contents of franchise agreements, as well as Disclosure Documents are now regulated in terms of the Consumer Protection Act and the Regulations published under this act. Compliance with the aforesaid legislation is compulsory. Each and every franchisor would be well advised to ensure that its franchise documentation complies with all applicable legislation.
8. Continue finding new ways to help the franchise be more profitable. Send newsletters, give additional training at no cost to the franchisee, hold regular conventions and recognize outstanding franchisee performances by giving awards. A happy franchisee means a happy customer.
9. Your franchising aim is to sell franchises in large numbers. Nothing happens until franchises are sold.

Buying a Franchise

Rather than starting your own business, you can purchase an established successful business franchise.

Buying a franchise has it's advantages and disadvantages, but it is at least a path to self employment.

Before you invest, make sure you do a lot of investigating and preparation.

To find out if the franchise represents a sound business opportunity, you need to find out:

1. what the nature of the business is
2. the location of the franchise store
3. the success of the franchise concept and how financially successful they are
4. the amount of competition from other businesses at a local and national level
5. the public perception of the franchise
6. levels of initial and ongoing costs
7. how much training and support you'll get
8. conditions and restrictions in the franchise agreement
   

The franchisor will probably give you an franchise information pack but you shouldn't just rely on this. Make sure that you have legal backup and look for evidence of their claims.

Some of the most successful franchise industries include food, beverages, travel, stationary, furniture, fitness, spas, personal care services and cleaning services.

Advantages of Franchising

With franchising, the capital in respect of the setup or buying of the business is provided by the franchisee. Franchisees are very motivated because the success of the business will involve their own capital at risk.

Franchising is the only way to supply rapid marketplace growth effectively. There are only a few impediments to grow through franchising.

Franchising offers the opportunity to have multiple units worldwide. The buying power of a franchise can't be beat.

As a franchising system grows so does it's image in the marketplace. Franchisors can secure great locations far better than non-Franchise businesses.

A franchise group can also advertise extensively because the cost is shared by multiple units.

Generally franchise companies grow quickly, are high profile and have the potential for large growth.