It is very essential for any franchise system to have a very well defined audit programme in place. At sparkleminds we lay emphasis on designing a comprehensive audit plan to ensure that the franchising is systemized and structured. We take a 3-step approach to designing an audit plan:
- Creation Of A Detailed Outline: Typically all processes from selection of franchisees to remittances of royalties, functioning with adherences to the operation manuals upto the annual recognition of franchisees that have performed well from an audit perspective are drawn. We could relate this to a diagnostic test outline.
- Testing the results of adherence to the outline: Each outline must have a clear measurable way of testing the results including statutory filings and other mandatory and voluntary submissions which franchisees make or are asked to make. This could be the actual testing process.
- Recording the audit and compliances to the results: The final emphasis is on the levels of adherences that the franchise system needs to maintain and how the franchisees have to either improve their functionalities or ensure that they are within the permissible limits of the audit findings. We call it the franchise audit cure with clear prescriptions for individual franchisees
Hence its just not about measuring if the franchisee is under reporting the sales or is remitting lower royalties but covers the entire functionality in a far more comprehensive manner. These audits would also include expected gross profits and emphasise on operational expenses, employee’s cost and other areas at unit levels, which not every franchisee may be able to control or monitor. Hence when the franchisee is given clear guidelines from these audits as to how they could improve profitability, it works to the advantage of the franchisee business in question.
Franchise audits also have to provision for destroyed records or at times very little co-operation from a few franchises. In most franchise systems, putting a franchisee to an audit check notice is relatively difficult. If we consider the honest and compliant franchisees, we would see that they would be interested in getting done with the audit in the fastest, most efficient manner and ensure that everybody in the system is on the same platform. The non-compliant franchisees are always bleeding the system in one way or the other, just seeking their individual benefits and hurting themselves and the brand in more ways than one, by being short sighted. Hence it is ensured that such franchisees are dealt with firmly through the audit mechanism (provided the franchise agreement is in sync with the actions the franchisors can take) on the one hand and on the other the honest franchisees incentivised for adding value to the system.
We also bear in mind greatly that any franchise audit process should ensure that at the end of the exercise it adds to the profitability in one way or the other. Many franchisors also penalize the franchisee for crossing the lines drawn by the audit outlines, beyond which the costs of audits are to be borne by them. Benefits received through a proper audit always out weigh the costs that the franchisor incurs. It must.
As franchising becomes competitive and the need for proper co-ordination between the franchisor and franchisee is inevitable, regular on the field audits, would be a pre-requisite for any successful franchise program. We would be more than pleased to help you make your franchise system that much more efficient and compliant.
Please contact our senior franchise consultant for a more detailed discussion on how we can help you franchise better through the audit mechanism.