System Standards and Stopping Defaults

The cornerstone of every successful franchise system depends upon the uniformity of its operations. Without consistently enforcing system standards among all franchisees, a franchisor’s brand identity and goodwill are at risk. There are two steps a Franchisor should initiate to build system compliance. The cornerstone of every successful franchise system depends upon the uniformity of its operations. Without consistently enforcing system standards among all franchisees, a franchisor’s brand identity and goodwill are at risk. There are two steps a Franchisor should initiate to build system compliance.

Enforcement of system standards should start with a franchisor’s consistent inspection of franchisee operations, using trained inspectors. Each inspector should use the franchisor’s standard inspection form which lists each category and area to be inspected. The inspection report when used correctly provides a Franchisor with a blueprint for insuring compliance and additionally, helps a Franchisor assist its franchisees to improve the franchised business. At the conclusion of an inspection, a copy of the report which lists any deficiency or failure to follow system standards should be provided to the franchisee. The franchisee should be instructed on the means to correct violations and then given a time within which all violations must be corrected. If the franchisee is not present at the inspection then the operations manager should be advised of violations and should be required to sign the report. Thereafter, a copy of the report should be sent to the franchisee pursuant to the required notice section of the franchise agreement. As part of a Franchisor’s compliance program a copy of the signed report should be scanned into the franchisee’s electronic file along with proof of required notice to the franchisee. If violations are material, a Franchisor should have its attorney send the franchisee a “Notice to Cure” letter.

An additional tool a Franchisor may employ to insure system compliance is the use of electronic access to a franchisee’s operations. One common method of electronic access is logging into the POS system. A Franchisor should assign one of its staff members with responsibility for obtaining financial information, all purchasing and sales data and any number of other categories of information. The Franchisor should develop a pro forma model from a select number of franchisees or company facilities. By comparing data from other franchisees it is easy to set up red flags when a particular franchisee falls outside the parameters established from the operation of other franchisees. When coupled with other reporting mechanisms, a Franchisor can help to ensure system compliance and not let dissident franchisees go too far before curing a violation or facing termination of their agreement.

Making a true commitment to developing, communicating and enforcing system standards ensures the consistent quality of a franchise – failure to do so ensures erosion of the system and ultimately its collapse.