Problems and conflict can occur in any commercial relationship, and franchising is no different.
Franchise problems in franchise relationships can arise from differing expectations of a franchisor and franchisee. These may include the qualities, discipline and responsiveness each brings to the franchise relationship.
Franchise problems about financial issues can arise if franchise fees are not paid on time, or franchisor support and training (for which the franchisee pays) is considered to be lacking or inadequate.
Fundamental to the smooth running of a franchise business relationship is a business model that is profitable for both the franchisor and the franchisee. If this is a one-way street, franchise problems will be inevitable.
Franchise problems resolutions
Where franchise problems and conflict occur in franchise relationships, franchisors and franchisees should first attempt to resolve the issue before referring to an external agency.
A normal dispute resolution procedure will at first attempt resolution informally, then by a formal written notice which will generally include the nature of the dispute, and desired outcome to resolve the dispute, and a timeframe for this to occur.
In Australia, under the Franchising Code of Conduct, serious disputes that cannot be resolved between the franchise parties themselves, should be referred to mediation.
Office of the Mediation Advisor
The Australian Office of the Mediation Advisor was created to assist franchisors and franchisees appoint a mediator if they could not otherwise agree on one between them.
Once a party has made a request for mediation, it is a contravention of the Australian Franchising Code of Conduct for the other party to refuse to mediate, however there is no requirement under the Code for a mediation to result in an agreed outcome, whatever the franchise problems may be.
Mediations referred through the Office of the Mediation Advisor have a settlement rate of approximately 75 percent, which means an outcome to the dispute that is acceptable to both parties has been reached.
Mediation versus litigation
According to statistics from by the Office of the Mediation Advisor, the cost of mediation is understood to be as little as 5 to 20 percent of the cost of litigation.
Not only are the costs of mediation lower than litigation, but the process of mediation is much less confrontational and much quicker than litigation – the end result of which is outcomes to franchise problems are achieved sooner and at a lower cost.
Avoiding franchise problems
Not all franchise problems and disputes need end in mediation or litigation. A major characteristic of excellent organisational leadership is the ability to resolve disputes.
Good franchise businesses will have sound in-house processes to amicably resolve franchise problems with minimum disruption to the franchise businesses of either the franchisee or franchisor.