New franchise law shows that, above all, it is necessary to invest in a business model

Sanctioned on December 26, 2019, the new franchise law (13,966 / 19) was implemented to meet the sector’s desire: To update the law 8,955 / 94, which was completing 25 years and was already somewhat when outdated, in front of to the advances that the franchising system has presented over time. Thankfully, with so many opportunities to improve operations and the business offer, franchising needs to innovate and invest in processes and tools that make it increasingly dynamic and attentive to competition and consumer desires.

Certainly, Franchise law firms will be able to analyze that law with a view to jurisprudence, courts and the documents that govern the franchise system - the Franchise Offer Circular (COF), the Pre-Contract and the Franchise Contract. Many have already spoken out about the law itself, its benefits and the loopholes it brought and even what it failed to contemplate. My idea is to make a deeper analysis: I want to lead franchisors to reflect on the importance of good formatting, after all, it is quoted, without any parsimony, to good connoisseurs, in the most extensive article of the law, Article 2. There, the legislator determines all the items that must be described in the Franchise Offering Circular, such as: the previous balance sheets and financial statements from the last two years, the franchise’s detailed description and the activities that will be performed by the franchisee, a profile of the ideal franchisee, the fees and investment values, the issues related to territorial exclusivity, the products’ supply-chain, and also, information about support and supervision, incorporation of technological innovations, training, manuals, layouts and architectural standards, among other items. So, how could we develop a document considering all this information without the previous meticulous design of the step by step plan and the certification that something is tested and proven to be effective?

The saying that goes 'on a piece of paper everything is possible' is fashionable. However, it is not the case when we bring it to the Franchise Offer Circular context. The article 4 by the new franchise law is quite clear when it states that it’s guaranteed in favor of the franchiser the nullity of the contract, with the return of monetarily adjusted rates in case of omissions or misinformation on the Franchise Offer Circular by the franchisee. In this way, the law also imposes penalties on those who do not act honestly or those who create subterfuge just to comply with the law, but having nothing to present in the document (again, due to the lack of professional formatting).

Professional formatting: preventing expenses and wear

Recently, I participated in a project in which the franchisor made a wrong estimate of the size of the franchised unit. According to the franchisor, X m2 of area would be necessary for the franchise to operate fully, reaching its potential for the monthly revenue forecast to be fulfilled. However, during the formatting part in the business feasibility study, we detected that it would be impossible to reach the numbers that the franchisor presented and that it would be necessary to expand the store area. This expansion would have an impact not only on finding commercial points different from those foreseen, but on the total value of the planned investment, architectural project, deadline for the opening of the franchised units, number of employees needed to operate it, rental price and on a series of other items that make up the entire business. Why, then, change everything - and not leave it as the franchisor proposed in the beginning? The reason is that without the expansion of the store, the franchisee would be much more at risk of not reaching the expected revenue and not having the return on his initial investment - that is, no franchised unit would achieve the expected success. Furthermore, each failed unit symbolizes financial losses and brand image, as well as conflicts and wear and tear for both parties.

With this example, it can be seen that a good format, performed by specialists, encompasses the entire business feasibility study, so that, afterwards, the items that compose the COF are designed and, thus, what the law. The path can never be reversed: formatting is not done to comply with the law, but all the requirements imposed by the law are fulfilled only when there is good formatting.

Proper formatting also allows franchised units to be marketed in a clear and consistent manner, that the franchisor is designed to offer a growing and sustainable structure, without relying solely on the franchise rate to survive, that there is a business plan consistent with the reality of the market, the analysis of competition and the positioning of the brand.

Finally, whenever necessary, adjustments and reformatting are done - because, as I mentioned at the beginning of this text, if even the franchise law has been updated, franchisors must also constantly seek innovation and recycling, so that they stay healthy in the market.

*Adriana Camargo -