Good governance: Why accountability and compliance are key for franchisors

Like all businesses, many franchisees and franchisors are currently feeling the impacts of New Zealand’s slow economy. The April 2024 BDO Business Wellbeing Index shows that record low levels of business leaders are feeling positive about their overall business performance. With inflation and interest rates remaining high, it’s likely that challenges will remain for businesses for some time. So what can franchisors do to alleviate some of that pressure, both for themselves and their franchisees?
A strong franchise requires strong governance
Of course, good franchising is about having a strong system in place, but great franchising also requires implementing the right systems and procedures at the franchisor level. Strong governance is key to ensuring businesses are operating efficiently and effectively - and it's especially important within franchise systems, where the investment and independence of business owners is quite different to company-owned or independent businesses. Franchisors should not only focus on the governance of their business but also provide a guiding hand from time to time to assist franchisees in their governance.

Of the Institute of Directors’ four pillars of corporate governance, accountability and compliance are particularly key for franchisors. Not only is it vital for franchisors to be aware of what’s happening in their franchises, but they should also equip their franchisees with the support and training they need to succeed. A common cause of financial hardship for businesses – franchise or otherwise – is owners avoiding the difficult conversations and avoiding asking for help. As a franchisor, being able to intervene early and have the honest conversations is key for everyone’s wellbeing, including other franchisees who are impacted by bad news of other franchises.
How franchisors can improve accountability and compliance to boost their businesses
Good governance is one of the keys to franchising success. To strengthen governance, you should look at accountability and compliance within your franchise system. This includes:
  • The training supplied and financial literacy of franchisors.
Accounting is the foundation of the knowledge required to make sound commercial judgements. As a franchisor, what leadership are you showing? Consider tailored financial literacy training for new owners to set them up for success.
  • Income results and royalty reporting.
Do your franchisees understand how to correctly complete their royalty declarations - and are they being accurate? Fair dealings ensure franchisees and franchisors work together with trust, for mutual benefit. In our experience of completing franchise compliance reviews, we have even identified instances of franchisees overpaying franchise fees.
  • Business performance.
Are your franchisees succeeding? Are there trends or common problems where you could provide support to lift results? Being transparent with expectations of success early on and having clear communication channels can make all the difference.
  • Payment obligations.
Is the franchisee settling their obligations on time? Timely settling of payments to Inland Revenue, suppliers and employees are all key to accountability and compliance.
  • Insurance protocols.
It may be advisable to review the types of insurance held by the franchise to manage risks and protect against unforeseen events. Often in our experience, there is a mismatch of insurance requirements to that in place by franchisees – sometimes they are over-insured too.
  • Evolving and updating.
Reviewing and updating your agreements to ensure they are also in line with best practices and are fit for purpose in today’s technologically advanced world.

As the franchising industry continues to navigate the changing business landscape, BDO is here to help. We draw on our vast experience serving the franchising industry to help our clients looking to buy a franchise, navigate challenges for business owners and identify growth opportunities. For more assistance, contact your local BDO adviser or learn more about our franchise support here.