Ethical Franchising: Fundamentals & Practice

Franchising is booming, both here and across the pond.

FRANdata says demand for franchise units in the U.S. is expected to increase more than 12 percent in 2014, the highest rate of increase in five years.

The UK has over 900 franchise operations. “The diversity on offer is substantial,” writes Paul Stafford, public relations manager at the British Franchise Association (BFA). “With time, emotion and capital all being invested at sometimes substantial levels, it is crucial for potential franchisees to choose wisely when it comes to finding the right franchise to join.”

Just as we happily share our vast point of sale experience and expertise with startup owners in order to help them make the best decisions from the very beginning, we at Sintel Systems are happy to share articles and commentary about the perceptions and reality of the risks involved in a career change into franchising — a major area of our point of sale (POS) expertise.

In his startups.co.uk blog post, Choosing A Franchise: The Importance Of Ethical Franchising, Stafford writes, “A significant aspect of a franchisee’s decision-making must involve the way the franchisor operates their business. It’s commonplace to refer to franchisors that are operating the right way, and therefore worthy investments for franchisees, as adhering to the principles of ‘ethical franchising.'”

To discover, in part, what ethical franchising might mean to a prospective franchisee, Stafford’s lists Four Fundamentals Of An Ethical Franchise.

First, the business needs to be proven to work, and not an abstraction. Evidence must exist that the product or service is saleable at a level of profit that will sustain both franchisees and franchisor.

Furthermore, the business must be transferable and teachable, meaning that the business can be run in multiple locations by multiple independent operators using the same system, brand and quality standards.

Writing in the U.K., Stafford’s third key element of an ethical franchise is that it is structured and operated in accordance with the principles set out in the European Code of Ethics for Franchising, which broadly covers advertising, recruiting and interactions with franchisees. “The legally-binding franchise agreement, while weighted towards the franchisor to protect the brand and wider network, must be fair to both parties and comply with UK law, European Community law and the European Code of Ethics,” Stafford writes.

The final element of an ethical franchise is that all information on the business material to the franchise proposition and contract is disclosed without ambiguity to prospective franchisees — and any financial projections and earnings forecasts shall be objective and realistically achievable.

“Now that you understand the principles behind a good franchise business, one which is worthy of consideration for your efforts and capital, it’s worth discussing what ethical franchising means in reality,” Stafford writes. He therefore lists What, In Practice, Every Potential Franchisee Should Look For In An Ethical Franchise.

Proven success. A new franchise should have at least conducted a pilot operation for a minimum of 12 months before recruiting franchisees. “No pilot means no proof that the concept works,” Stafford writes.

Open disclosure. “Good franchisors understand the benefits of having well-informed prospects,” writes Stafford. Beyond gaining a thorough understanding of daily operations, potential franchisees should ask any questions they have in order that they understand the franchise’s ethos, sustainability, fees and proposition. “Ask for proof that the business can be profitable for a franchisee, and find out what projections are based on; find out about the health and history of the network and the people behind the brand.”

Legal considerations. Stafford wants his U.K. readers to make sure they have their franchise agreement reviewed by a BFA-affiliated franchise solicitor and writes, “Do NOT skip this step!”

Initial training. Because in most cases franchising is set up to allow someone to operate a business in a field in which they have no professional background, Stafford notes there should be sufficient training in place before a new franchisee begins trading to successfully launch. “It might be on sales and marketing, administering the business, the systems, technical training — but it must be in place.”

Ongoing support. A franchisee’s monthly management service fees entitles them to continuing support and training at scheduled intervals, and on an ad hoc basis, as required; so be sure and find out what the franchisor is committed to providing.

Synergy. Stafford notes that a franchise must NOT be dependent on selling and re-selling franchises to survive, it should be reliant on the long-term success of its franchisees to make its own profit through MSF. He believes a good franchisor makes very little or no profit off the initial joining fees, which will mostly cover training costs and administration. “That way, it’s encouraged to help its franchisees do well,” Stafford writes. “Ask for a breakdown of the start-up costs, which can vary widely — find out where your money is going, a good franchisor will tell you.”

Don’t wait until late in the game to plan for your point of sale system. The benefits of establishing an early relationship with your point of sale company are many — not just in demystifying the process and determining the optimal system — even before you decide on a franchise direction.

Sintel Systems is the only direct to end user full-service provider of tailored Point of Sale systems across retail, restaurant and service industries, including frozen yogurt shops, pizzerias, sushi restaurants, cafés and retail stores.

As a single source for business solutions, our experienced, knowledgeable team negotiates the complex POS landscape for you to enable you to find the right POS system for your business and budget. Hardware – Software – Support

Questions or Comments: Contact us 855-POS-SALES www.SintelSystems.com