What is a Franchise?
Describing a franchise is like describing love; it is many things to many people.
The definitions are as wide and as varied as the oceans. If you asked 100 solicitors what does, and does not, constitute a franchise under the law, I would hazard a guess that you might get 100 various responses.
From a legal standpoint, a franchise is the granting of certain systems of business operation to a second party under a range of legal conditions. The legal conditions are essential for the systems to be secured and duplicated. With such a wide and open description, where a ‘license’ ends and a ‘franchise’ begins can often be very unclear.
Many people who have an adversity to the term ‘franchise’ will go to great lengths to circumnavigate their interpretation of what constitutes a ‘franchise’ and build a ‘licence’ instead. Unfortunately, these ‘licences’ often are determined by the court to be a ‘Franchise’ by another name, and very costly prosecutions have been successful under the franchise code.
Certain forms of distribution can also fall under the description of what constitutes a franchise. If the Licensee is restricted in any way from diversifying his product range or the services he can provide, or if he is instructed as to various forms of selling or marketing procedures, pricing structures, uniforms, business names, etc, etc, it may well be classed as a franchise under the law.
This is not all bad news. From a Franchisees point of view, these laws have been constructed to protect them from unscrupulous individuals and unhealthy business practices. Legal documentation is usually written in English rather than the previous ‘Legalese’ that seemed to have been designed to confuse rather than illuminate which is also a great step forward.
One of the most onerous sections of the law pertaining to franchising is Section 52 of the Australian Trade Practices Act which forbids ‘misleading and deceptive conduct’. ‘Misleading’ does not necessarily mean blatant untruths or out-right lies, it can be verbal or written information that was given with the intent to mislead.
Franchisors have been forced to become super honest. If the Franchisor has a decent number of outlets or franchises operating, it is fairly easy for him to make a fairly accurate estimation of what a new outlet or franchise might turn-over in a specific location. You, as an intending Franchisee, may be investing a few hundred thousand dollars and you would like to know what the Franchisor has estimated the new enterprise can, or might, earn. He may be very accurate at predicting this, however he would be very stupid to tell you what he believes. His estimate is based upon a number of factors, not least, the skills, attitude, dedication and commitment of the Franchisee, you.
No matter how stringent his investigations into your perceived qualities may be, he cannot predict the future. He does not know how you will react under certain conditions. Whether your spouse may suffer from depression or homesickness and this, in turn, affects your performance as a Franchisee. He is not privy to the future weather conditions, earthquakes, floods or famine. He is not included in the board of mega-national companies with their own agendas or to the vagaries of local and state governments working to the beat of their own drum.
If things do go bad you will remember that the Franchisor said that you would/could make an easy $200,000 pa. He may well have done so, but with a trailer stating that this was dependant upon your performance/behaviour/dedication. Whether intentionally, or due to the difficult circumstances in which you find yourself, you have forgotten this ‘rider’ to the statement. This is then taken to court where the Judge decides that it constitutes ‘misleading conduct’. Not a very fair outcome for the Franchisor who may have been totally innocent in his intentions.
However, it is important to be aware that these laws also protect the interests of the Franchisee in many respects. Some may see them as very heavily weighted in favour of the Franchisee but this might not necessarily be a bad thing. If a Franchisee is successful in his business it follows that the Franchisor is also successful. No one needs to fear a franchise. Whether you are an intending Franchisee or considering becoming a Franchisor, getting the ‘right’ advice will keep your business expansion plans alive and allow you to follow your dreams.
Some descriptions of a franchise can be of an esoterical nature; “Being in business for yourself and not by yourself” is one of the most common. It is a very good description for this is what the concept of franchising is supposed to be for the Franchisee: A union of parties where one party contributes certain systemised skills with the second party bringing a complimentary range of skills, together this should then be a very strong and powerful trading entity.
Note the word, ‘should’. We all know that ‘should’ does not equal ‘does’. This is the spiritual goal of franchising: A symbiotic pairing of entities where both benefit equally. Sadly, human nature being what it is, this is a goal that is not often reached completely. However, getting close is often an enviable and attractive business position for both parties.
From a less formalised and legal description, the basis of a franchise is that someone has gone before you. They have spent considerable dollars and a huge investment in time in finding out what works and traversing blind and unprofitable business alleys to develop a system that works. Mistakes are costly. Many businesses do not recover from a mistake – many simple mistakes can be fatal. What mistakes are there to encounter in a particular business and how to sail through with the minimum of damage is one of the reasons that there is a franchisee fee.
The franchisee fee is a payment made by the intending Franchisee to the Franchisor as compensation and insurance: A way of compensating him for his tenacity and his endurance for getting his business system viable. And it is an insurance to guarantee that he will not let you make the same mistake.
It can take three years to get an independent business into a positive cash-flow situation. Three years of hard work, heartache and disappointment. With a franchise system you can often be in a positive cash-flow situation within a month. How valuable is this?
Franchising is the safest method of getting into business. I also believe that it is the cheapest. You may pay more up front but it will cost you much more to try to re-invent the wheel. PLUS; united we conquer…. Bulk discounts, cooperative advertising, mentors and compatriots abound in a franchise system. Being in an independent business alone can be a very lonely experience
What is a Franchise - To learn more about this author, visit Colin Mackie's Website.
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Anne Barr
Anne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations,
networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business
ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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The Evan Elite Authors program is currently in beta phase. For details please contact us.
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Colin Mackie
(Visit Colin's Website)
Colin Mackie has had over 20 years of
experience in the franchise sector within
Australia and has acheived a number of
records that still hold today in this area
of business.
Colin's main expertise is in the area of
franchise development where his comapny
will assemble all of the required
documents after
a fair, equitable and viable franchise
concept has been investigated and accepted
as the best form of franchise system for a
particular business of industry type.
His personal business experience is
exceptional and covers such a wide area of
business types that his knowledge is often
seen as unequaled by many of his
associates.
One area where his company excells is in
the area of Franchisee Selection. Colin
feels that you should never 'sell' a
franchise, but select people who, after
investigation, will have an above average
potential for success.
Colin and Enterpise 21 have also developed
a system of personal development that is
essential in getting the attitude of
Franchisees and staff into a place where
sucess will be acheived much more easily
and with a much more positive attitude.
Colin is available for events and
workshops by request.
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