We call them compliance audits but you might know them by another name. Regardless, we would argue that the practice of sending an auditor to your franchisees to check that they’re operating to the standards your franchise business requires is hugely important, for a number of reasons. Here are our seven main reasons why franchisors should audit the compliance of their franchisees –the last one is super important!
Controls develop compliance
You’ll have a standards document and a training manual and you’ll probably expect that your franchisors treat these like their holy operations bible, right? However, we have evidenced that your franchisors compliance with retailing, brand, service and finance standards (among others), is only going to be high when everyone knows it’s going to be periodically verified.
Training and service standards maintained…
Training your staff well gives you a solid foundation for success in franchise. But how do you know that they’re applying their learning and continuously enhancing the customer experience? And what happens if that previously keen staff member suddenly becomes demotivated and “forgets” all of that great training you’ve invested in them? That’s where an external auditor comes in. They’ll help you see periodically, where your current training needs are so you can upskill your staff and maintain service quality. They’ll also open your eyes to the real customer experience, which is often not what you expect.
Audits push franchisees to operational excellence
The relationship between you the franchisor and your franchisees is crucial. One way of maintaining an accountable and positive relationship is by auditing their operating standards. This will push franchisees to improve the store according to best practices, continuously. When you develop your standards, make sure to describe each standard in detail. It’s a good idea to give photos as examples of how you need things to look.
Franchisees are all different
Your operator franchisees are all different. They’ll have different work experience, different ways of doing things, different priorities and they may even have other franchises too. So we can expect them to execute your operations manual slightly differently. That’s ok, but you will need to find some way of making sure the core brand standards are implemented the same in all of your stores. Compliance audits help you understand who of your franchisees is nearer full compliance and who might need to do more. We’ve found that different pressures and external influences can see standards slipping at any time, so ideally you’ll need to find some way to do this ongoing. A program of Venners compliance audits would achieve this.
The value of your Brand
Your franchise operators are in the care of your brand. If they are operating well you have nothing to fear. However if they’re operating badly, it can quickly result in brand damage. Similarly, if a customer has a negative experience in one store, they may stop going to other stores and they may even talk to their friends and family, influencing the visiting decisions of others around them. This can hurt all of your franchisees profitability and hamper the franchise.
Crucial for franchise growth
If you’re looking to grow your franchise business and aim to oversee hundreds of stores and retail outlets, it is important to be able to present a strong, well maintained, consistent brand to potential franchisees. After all, they will be less inclined to invest their life savings if they perceive your franchise to be poorly ran and inconsistent.
Under-reporting of sales
Our experience tells us that this is a major issue in franchise. It is a common practice for franchisees to under-report sales as doing so lowers their royalty fees. This helps them swell the coffers and bank money which, by the terms of your agreement, is yours!
These days, there are many subtle and cunning ways of doing this. From fixing the paperwork to gaming the EPoS. One expensive solution is to have a centralised EPoS, but even this may need auditing from time to time.
The very best way is to employ compliance auditors to verify the franchisees sales / royalty reports that are being submitted to you every month and reconciling those with your EPoS data to highlight any variances. This approach often throws up hidden money and shows the particular systems that have been abused in order to pay you less.
Our financial audits form part of a wider audit, that captures compliance levels for brand, service, security and finance. It forms a strong backbone of controls for better corporate governance, higher profitability and a more stable franchise business.
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