Why are compliance audits key to running a successful franchise brand?

06/07/2023 Venners Ltd.

“Running as successful franchise brand is not an easy task. It takes a lot of support and input from the right networks. Compliance audits aren’t typically seen as the most exciting or pleasant of procedures but the benefits they will provide to your franchise brand are endless. Your franchise brand is precious to the success of the entire business and compliance audits are the best way to keep it safe.”
– Duncan Colvin, Head of compliance, Venners

Running a successful franchise brand

Running a successful franchise brand should always be a key focus for franchise owners – no matter what stage of the franchise journey you are at.

Whether you are planning on opening a new franchise site as part of your bigger portfolio, or are already running a top franchise brand, compliance audits are a vital part of properly managing a franchise brand.


What is your franchise brand?

Your franchise brand is everything that shapes and upholds the image a customer has of who you are as a business. Sadly, when standards slip in one of your franchised sites, it can damage your franchise brand’s reputation, impacting every other franchise site that is connected to the brand.

Beyond the superficial elements of your franchise brand, which can include customer service, product offering, physical branding, levels of cleanliness and much more, there are many other facets to maintaining your overall reputation as a business.

Your management of security presence, the responsible handling of finances, and legal adherence to local and national rules are just some of the other areas that impact your franchise brand’s reputation. Introducing a level of risk resilience through compliance auditing helps to remove threats to how your franchise brand is perceived both internally and externally.


What is a franchise compliance audit?

A franchise compliance audit is a health check of each individual franchise site to determine how successfully they are representing the franchise brand. Each site’s health check contributes to obtaining a holistic overview of the strength of your entire franchise brand.

As a franchisor, you want to be certain that your franchisees are operating in line with your franchise brand standards, as well as the terms of the franchise agreement. Franchise compliance audits are the most simple and effective way to safeguard both of these areas. Without dedicating time and effort into auditing your franchise sites’ compliance, it is virtually impossible to drive a truly successful franchise brand.


How do compliance audits contribute to a successful franchise brand?

Franchise brands are complex by nature. This, in combination with the fast-paced expansion targets that are typical in this sector, makes controlling a franchise brand extremely difficult.

Compliance audits ensure that your franchisees are complying with the terms and standards you set out within the franchise agreement, protecting your brand from being undermined by your franchise partners. They also bring franchise owners and managers a level of clarity and control over the current state of their franchise brand.

Your franchisees too, benefit from franchise brand compliance auditing. They are more likely and more motivated to operate in a compliant manner if they know their work is going to be checked and verified. Franchisees also tend to seek out franchise brands that are keen to help them succeed. They would see the benefit of a robust business structure, which should include an effective compliance auditing programme.

Compliance audits often come with preventative and corrective action guidance, thereby empowering change and uncovering a genuine route to success for prospective franchisees. So, when it comes to attracting new and high calibre franchise partners, having a successful and robust franchise brand is one of your main selling points.


Compliance based on your franchise operations manual

Introducing, communicating and checking against a firm set of compliance operating procedures is critical to the survival and success of your franchise brand. Your franchise operations manual is the rule book that should be the foundation for monitoring your franchisees’ compliance standards.

Laying down your set of franchise compliance standards does not necessarily result in those standards being upheld. As well-formulated as that 800 page code of conduct document may be, it will not in itself be the solution to maintaining a successful franchise brand.

We live in a busy world, so in truth, many of your franchisees and/or their employees will never have the time to fully absorb all of your compliance protocol document’s content. Even if they do, it is unrealistic to expect them to remember every required standard by heart.


Resolving non-compliance within your franchise brand

Many franchise owners will attempt to solve non-compliance by appointing area and regional managers to examine and audit the franchise compliance standards of its franchisees. But this offers you a less dedicated approach, both in terms of time spent on the task, and the focus that is given to it above other responsibilities.

You will typically find that this approach will result in less detailed feedback, making it counterproductive. To combat this, we would recommend employing full-time support from individuals who are skilled specifically to monitor compliance.


Using compliance audit scoring to manage your franchise brand

A good compliance audit should be composed of the right questions. This sounds simple, but to capture true compliance levels that cover the entire franchise brand, and its objectives, requires a well-formulated audit framework and programme. Without this compliance is intangible.

Examples of the right questions to ask could be, “Has a Fire Evacuation been completed and recorded within the last 6 months?” Or “Are the products on site approved supplier products only?”

Each question posed should be allocated an appropriate compliance score, according to the criticality of the topic concerned. This will provide visibility of the overall and in-depth level of compliance to the franchise brand at each franchise site. A whole world of data analysis opens up for you to use to keep growing your franchise brand.

Questions that are scored as ‘fail’ frequently can indicate wider issues within your business structure, whilst individual site scores can encourage recognition and reward for those franchisees that perform well. It’s a constructive rather than punishment mentality.


What are the central areas of a successful franchise brand?

Our compliance experts have set out a list of essential, hospitality-specific standards to protect your franchise brand:

Operational standards

• Ordering
• Stock Control
• Record Keeping – Invoicing / Deliveries
• Product Quality – Preferred Suppliers / Approved Products
• Equipment Usage
• Margin control
• Till monitoring
• Security

Financial standards

• Payment Programs – royalty payments
• Cash Control
• Payment machine controls
• Banking procedures
• Revenue & Loss prevention

Brand standards

• Uniform
• Décor/Design/Signage
• Advertising / Marketing
• Customer experience
• Service
• Cleaning

Due diligence

• Payroll
• Statutory
• Policies & procedures

To find out how each of these areas can help your franchise brand become a top performer check out our next blog.


Franchise brand compliance areas that offer the highest ROI

Service standards

All things customer related, from customer experience to customer retention, can be analysed through a simple mystery visit. You should check the quality and compliance from the first ‘welcome’, through to the ordering process, all the way through to exiting the outlet. It is worth splitting the compliance audit between in-store and drive-thru processes.

The franchise audit report should make note of the quality of the food and the speed with which it arrived. It should also outline how helpful and friendly staff were. Finally, do remember to get a report on the cleanliness of the dining areas, availability of condiments and general ambience.
We’ve seen franchisees ordering in cheaper food items, against their agreement, delivering an inferior product and an inferior food experience. Their aim of course is to reduce their costs and improve their cut after royalty payments are taken.

Finance and royalties checks

Royalties are typically paid to the franchisor based on sales data. But, unless you have a centralised EPoS and above-the-till CCTV, there’s absolutely no way of knowing whether your franchisees are under-reporting their sales in an attempt to reduce royalty payments to you.

A franchise compliance audit should check all paperwork associated with sales data submissions and reconcile those with the outlet’s EPoS data to verify the fidelity of the sales reports.

This typically uncovers tell-tale patterns in EPoS usage that point toward sales data falsification. A franchise audit works to engage franchisees in the process, helping them to accurately report information to the franchisor, keeping the correct equilibrium intact.

Security checks – stock, staff, money

Keeping stock and money secure is important from a financial risk perspective and each franchise business is responsible for the secure working conditions and the safety of their staff.

If a franchise fails in either of these areas, then there could follow a good deal of reputational damage, which reverberates negatively around the wider franchise business.

A franchise compliance audit would check all storage areas for security. We’ve witnessed franchises where stock is stored in an open container at the back of the building, out of sight of CCTV, where anybody could drive up and fill their car boot.

We’ve witnessed liquor storage areas inside buildings left unlocked and we’ve often seen stock left in a quiet corner after a delivery, waiting to be put away while customers walk freely by.

Your franchise agreement should include a stock delivery protocol to protect the company from losses. In any case, a franchise compliance audit would check for you whether stock has been received, moved and stored securely at all times.

Our society is becoming ever more reliant on card transactions, but cash is still widely used and sometimes how that cash moves from customer, to till, to office, to safe, can be open to abuse. A franchise compliance audit would check till receipts, banking slips, floats, safes and associated paperwork to guard against banking fraud, helping to keep finances secure.

A franchise compliance audit would also check that the security of your staff is being adhered to. It would verify that the outlet’s CCTV is working and up to date. Staff protection measures should also be in place and branch security should be maintained in line with any agreed terms.


Compliance audit reports that work for franchise brands

Your audit report should be tailored to your business, categorising some or all of the key themes we’ve mentioned in the previous sections. It should not just report on what is happening across your business, it should give you the tools and advice to make corrections and positively evolve your franchise brand.

Reaching out to an independent partner to help you manage compliance of your franchise brand is of key importance.

Making sure your compliance programme is deliverable simultaneously across all sites and as far geographically spread as you need it to be is also something to look out for.

Beyond this, find an auditing partner that has the capability to address the complexity of franchise based compliance by proposing actionable solutions through business coaching that enable improvement and growth.

If your franchise brand is struggling with any area of compliance, or if you feel you are losing the required level of control, speak to Venners today to find out how we can help.