How to Maintain a Successful Franchise

 

Written by Sara Pantaleo, former CEO of La Porchetta and Deputy Chairperson & Victorian Regional Director of Family Business Australia  

On the face of it, a franchisor is an innovative entrepreneur that comes up with a great concept. 

As their business begins to take off their dream of going bigger becomes more of a reality and in order to scale up their business without investing significant capital, they make the decision to franchise.  

 

 

 

As CEO of a franchised chain of Italian restaurants for over 20 years, I oversaw the business grow from twelve restaurants to the largest Italian food licensed restaurant across Australia, with international sites too.  

 This involved navigating the business strategies and governance and managing the relationship dynamics of eight different families which had the ownership. 

 

 Can you genuinely grow an extensive franchise system without systems, processes and structure? 

 In my experience, you can grow to a certain level. However, you cannot grow to a larger size without solid governance. It is necessary to replicate time and time again and grow nationally and internationally with consistency. 

 The need to have a business structure that protects reputation, Intellectual Property (IP) and nurtures the relationship with the franchisees is crucial. The system also must consider any marketing funds and how these are administered, funds spent and transparency with franchisees. This does not happen by accident.   

 According to the Family Business Survey 2021 by  Family Business Australia & Family Business New Zealand and Grant Thornton, transition-ready businesses show more resilience and have better governance. 

 Transition-ready organisations reported: 

  • 50% are more likely to have a documented strategic business plan 
  • >2X more likely to have a formal process for incorporating family values into the formal planning process  
  • >2X more likely to have a family constitution or charter 
  • >2X more likely to hold stakeholder meetings or forums 
  • >2X more likely to have a formal board of directors 
  • 6X more likely to have a formal conflict-resolution mechanism 
  • 27% decreased income in the preceding year
  • 58% increased income in the preceding year 

 

What is Good Governance?  

 A good franchising structure has a clear purpose and vision for the brand and aligns with the head office franchise team, the franchisees, and how the customer is serviced. In addition, it needs a strong compliance culture with all the industry laws, workplace safety, and the Franchise Code of Conduct. 

 It includes having robust business systems, policies and procedures that separate duties and authority but also systems that reward and recognise employee success and nurture a strong culture of collaboration.   

 A good franchising structure has a strong relationship with franchisees and mechanisms for them to be supported, have the opportunity to be heard and align with the franchisor’s strategic goals. 

Good franchise governance is good business governance. Things such as: 

  1. Setting culture and how the business behaves 
  2. Setting realistic executable strategies 
  3. Understanding and setting level of risk (balancing risk versus opportunity)
  4. Clarity and systems for a healthy employment framework – Both at franchisor and franchisee level (some liabilities can be passed to franchisor under the Franchise Code of Conduct) 
  5. Acting in accordance with the law and making informed decisions 
  6. Managing relationships of all stakeholders (team, suppliers, franchisees and customers) 
  7. Ensuring the viability of the business and brand protection (setting measures, tracking and taking action. Crisis Management Planning) 

Franchisors need to ensure a strong relationship with franchisees and ensure that if conflict or disengagement arises, all the team understands, and everyone knows what their role is. 

 It is essential to be innovative and aligned with today’s customers so that the franchisees have confidence that their investment continues to have value. But equally important is to never stand still and track, review, assess and adapt. 

What if the franchise business is also a family business?  

Family-run businesses do not always start with solid systems and processes. They don’t always think about setting up the business structure for expanding  to a franchise business. 

 Unlike corporate organisations, a family business is built on trust and informality by the founder. However, as the business grows and more employees are hired, structures and processes are needed. 

Formalising ownership structures, power and processes can sometimes stir up resistance in a family business. So, it’s best done early on.  

Family businesses need two separate sets of rules, one regarding how the family will behave and relate to the organisation and the other regarding how the family will behave and relate in the business. 

 Good family business governance ensures that the family has a strong culture of stewardship, protects the business for future generations to come and ensures that the business strategies are set up for growth and profitability. It also needs to take into consideration the ownership and succession plan. 

Family businesses need to have robust conflict resolution processes so that disagreements do not impact how the business is run. They need to deal with the family dynamics as well as the business strategy and structure. 

Having a family charter/constitution sets out what is important to the family and how they will induct family members into the business. Having a business board and/or shareholders agreements that deal with the ownership and succession, will ensure that the business will continue for multiple generations. 

So, the effort in building strong governance is worth it and will pay dividends. 

How to set up good business governance  

There are numerous training courses on directorship and governance for businesses.  

In my business, our executive team worked with numerous business advisors, being a family business we also had access to Family Business Australia (FBA) and their resources.   

 

 

 

 FBA is a not-for-profit membership association whose purpose is to empower and support family businesses to thrive and prosper for generations to come.  

 Family Business Australia has Accredited Advisors who specialise in assisting  family businesses get their structure right and have a  variety of online educational courses specifically for family businesses such as the Family Business Governance and Directorship Course and Planning Succession for Family Business. For more information visit www.familybusiness.org.au or call 1800 249 357.