Franchising is a business arrangement by which the Franchisor grants to the Franchisee the right to sell the Franchisor’s products or services according to the guidelines set down by the Franchisor.

The Franchisee uses the Franchisor’s name, goodwill, products and services, marketing procedures, expertise, systems and support facilities. In exchange, the Franchisee usually pays the Franchisor an initial fee and ongoing management services fees (or royalties) as stipulated in the Franchise Agreement. This fee pays for the ongoing support services provided by the Franchisor and allows for a profit for the Franchisor. The inter-dependence between the Franchisee’s turnover and the support provided by the Franchisor is what makes franchising such an attractive proposition, because each party wants the other to succeed. The Franchisee is at the sharp end of the market and is concerned with maximizing returns through customer satisfaction.

The Franchisor concentrates on maintaining the competitive edge of the product and providing the support services necessary to help the Franchisee concentrate his sales efforts effectively. A prerequisite for successful franchising is that the Franchisor must have in place the following:

An existing good name, goodwill, a successful product or service, marketing procedures, expertise, systems and support facilities. Should a “Franchise” on offer lack these prerequisites, it is not a true Franchise. In order to safeguard both Franchisor and Franchisee, it is recommended that the relationship between the parties not only be defined in terms of a well-structured Franchise Agreement, but that a detailed operations manual be prepared to finding the tasks of both parties but specifically the methods to be employed by the Franchisee in the conduct of the business.

A prospective Franchisee would further be encouraged to ascertain whether the Franchisor is a member of the Franchising Association of South Africa which in turn presupposes that the Franchisor shall comply with the said Association’s Conditions of Membership, including being a subscriber to the Association’s Code of Conduct. A further benefit of dealing with a Franchisor who is a member of the Franchising Association of South Africa is that the Franchisee has the opportunity of examining the Franchisor’s Disclosure Document which need be filed with the Association in which document a detailed exposition of the business of the Franchisor need be disclosed.