Gov’t told to initiate franchising law

By: Fred Yaw SARPONG
fsarpong@theeventpr.com

Businesses operating under the name of franchising in Ghana is said to be doing very well in Ghana and for that matter there is need for the enactment of franchising law or regulation by the government to regulate both the franchisor and the franchisee.
It’s a method of distributing products or services by licensing the processes, products, services and intellectual property to investors who will operate within an established business model. 
Franchising involves two entities namely the franchisor who provides the trademark/name and the franchisee who pays royalty for the right to operate through the trade name.
Franchising is in three forms, product distribution or retail; trademark/name used by the franchisee to sell his/her products; and business format franchising which is the combination, hybrid of the first two forms.
Currently, because there is no law regulating the operation of franchising business in the country, most of the companies are operating under Company Code Act 179 of 1963 or the 2016 amended version.
The companies make several agreements that enhance their franchising operation especially to the benefit of the two in the absence of a specific law protecting the sector.
Speaking to Lawyer Kwame Jantuah, a franchising expert, he explained that in many developed countries, franchising is a big business and it has boosted the operation of smaller entities.
According to him, even though companies that are currently operating under franchising in the Ghana are exhibiting professionalism, however its important to have laws and regulations to protect the industry players.
“Even though we do not anticipate anything negative things to occur in order to affect the industry players especially the franchisees, the government and for that matter relevant agencies must see the importance of franchising in current business environment in Ghana,” he stated.
Despite lack of laws and regulations regulating the sector, he indicated that the franchise agreement is a legally binding agreement which outlines the franchisor’s terms and conditions for the franchisee. It also outlines the obligations of the franchisor and the obligations of the franchisee.
The franchise agreement is signed at the time an individual or an entity makes the decision to enter the franchise system.
Touching on the role of a franchisor, he mentioned that there six major responsibilities that every franchisor will exhibit in order to succeed.
“They try their best in selecting qualified franchisees that understand the franchise concept and are committed to operating the system according to the established standards; and make sure to protect their brand and reputation by enforcing system standards in all company-owned and franchised locations.”
“They make changes to the system’s product and/or services mix when necessary to meet consumer demand; and also enhance and improve the operating system,” he stated.
He stated that franchisor provide franchisees with training for use with their teams to ensure that all unit staff understand their role in the franchised operation and have the skills to be effective in performing their job responsibilities and duties; and also develop and enforce advertising, promotion and merchandising standards, as appropriate, that reinforces the franchise’s brand image and increase customer traffic.
He further explained that franchisees have four major responsibilities for the success of the system in which they are granted a franchise.
They protect the franchised brand by operating the franchise in strict compliance with system operating standards; and build a strong and loyal customer base by offering only approved products and services of the franchisor by providing superior customers service.
They also ensure that all employees are properly trained and the franchise is properly staffed at all times; and they advertise and promote the franchise and its approved products and services according to the guidelines provided by the franchisor.
Explaining the challenges associated to the franchised, he stated that good franchises are not cheap because startup cost can range from less than the equivalent of US$10,000 to over US$1 million.
He pointed out that most franchisors apart from charging you a license fee will also charge royalties on your gross sales, which is part of the franchises expenses.
“Mostly, the franchisees could pay a typical royalty of 4% of gross sales”. He explained that gross sales aren’t part of profit but just the amount of sales they make in a given time and profit is what is left over after paying all expenses, including the franchise royalty.
However, that it also depends on ones negotiating strength and the kind of business in question with regards to the percentage of royalties agreed between the parties to the franchise.
Franchising can be found in construction/ real estate, automotive products and services, retail businesses, health and beauty, purified water, cleaning, catering, entertainment, pharmaceuticals, financial services etc. When well- regulated franchising can record massive gains in the areas of Gross Domestic Product (GDP), job creation and expansion of businesses.
One of such companies in the country is the Voltic Ghana Limited, a bottle water producing company. The company has allowed it brand to be use by individual to produce Go Cool sachet drinking water.
Currently, the Voltic has about 37 franchisees in about 48 sites across the country. Mr. Raymond Mensah Gbetivi, the Commercial Manager he explained that before the company will go into agreement with any franchisee, they make sure that they conduct pre-assessment interview with the franchisees to checks water supply capabilities and skills and whether or not they meet their minimal investments and display a level of professionalism during the initial engagement.
“We also conduct facility audit and implement CAP, signs franchise agreement, and assist with completing all the regulatory forms.”
He stated that they make sure production of packaging mats, with unique Food and Drug Authority (FDA) license number and facilities address details. “We usually provide two weeks of intensive technical training focused on quality for the franchisees.”
Franchising is one of the important drivers in economies. In the USA, there are over 780,000 franchise businesses that directly employ over 8.8 million people and account for over US$890 billion in direct economic output.
About, 90% greater success rate in franchise business according to Entrepreneur Magazine. After 7 years in business, franchised businesses were still operating at a rate of 91% as opposed to 20% of individual startups from research.
In South Africa, KPMG report in October 2016, indicates that out of over 31,050 franchise outlets, 26% are owned by previously disadvantaged individuals, employing 323,519 people nationally.
Ghana and Nigeria has more than 100 franchise companies.  Report from US Embassy 2016 concludes franchising will help in strengthening Ghana’s economy in the near future.