Quality franchising has come of age in New Zealand. The key to success is a relationship that is good for both parties. The self-regulating code of conduct promoted by the Franchise Association of New Zealand (FANZ) has set the benchmark for quality, which any new franchisor, or potential franchisee, can access and consider. However, misguided or neglectful franchisors still lurk in the wings. Some unfortunate franchisees still find themselves in a heap at the bottom of the cliff, wondering what went wrong. Lawyers telling them they have legal rights they can pursue is of very little comfort, especially if they are washed up financially and emotionally. The graveyard of discontinued franchise systems is also scattered with the evidence of people who did not understand the importance of the franchise relationship. It is therefore most important to get it right, from the beginning.

When selling franchises, the challenge for the franchisor is to comprehensively represent what they sell, with integrity and transparency. Profitability forecasts and cash projections should be based on factual data and any assumptions upon which the data is based should be communicated. A clear picture should be given of both the good and the bad. If the franchisor is venturing into the expression of an opinion, then it should be soundly based and honestly believed. Guiding comments offered in relation to the suitability of a site or locality should be based on sound methodology and experience.

When buying a franchise the challenge for the franchisee is to discern if they are dealing with a credible franchisor, and with a proven franchise system. The New Zealand Shareholders Association has a mantra – invest in businesses you understand, run by people you trust. It is a good test, and applies just as well to franchises.

The indicators of trustworthiness and integrity will be established in the pre-contract stage of communication. That is not a time for “smart” negotiating techniques. You don't court a partner for a long term commitment by holding back information, by gamesmanship, or pressure. If any such techniques are being used, it is better to walk away.

Best franchise practice: initial disclosure, education, extensive communication with potential franchisees (as advocated by FANZ) is the way to address these matters. Such steps draw a clear distinction between those who know what they are doing and those who may not.

Compliance with FANZ best practice will not eliminate risk, for being in business involves risk. If you can’t handle risk then you should not go into business on your own account. However the FANZ Code of practice will serve to reduce risk for both the franchisor and the franchisee. Honest, open and careful consideration of what is represented at the time a franchise is offered for sale will lay a solid foundation for a long term profitable relationship.

Also see our Franchising Section for more information.