Is the under-declaration of turnover acceptable?

Is the under-declaration of turnover acceptable?

Brian DuckettBrian Duckett, of the Franchising Centre, discusses one of the questions recently raised on its #FranchiseHour on Twitter, every Wednesday at 8pm – Is the under-declaration of turnover by franchisees acceptable?

Over several years of taking part in franchising conferences, seminars and workshops around the world, I have noticed that there are often things said in private groups that would not be said in more open forums

Talking about franchising principles and practices in public, necessarily leads people towards promoting the accepted theories, rather than the practicalities of how things actually get done.

In recent years the advent of chat rooms and other social media has provided a middle ground where, rightly or wrongly, the speakers believe they can say things to a relatively select audience that will not reach the wider population.

A development of this, and the inspiration for this occasional series of ‘Devil’s Advocate’ articles, has been the introduction by The Franchising Centre of #FranchiseHour on Twitter, every Wednesday at 8pm.

Anyone can join in the discussions be they franchisors, professional advisers, suppliers, franchisees or even people with no connection with, but an interest in, franchising. Contributions also come from people in other countries, so an interesting wide-ranging discussion often takes place.

Whilst there is a chosen topic for each week, there are no rules for how things might develop. One thing we have learned is that it helps to have a potentially controversial statement or question to start things off. One of these was: “What level of under-declaration of franchisee turnover is acceptable?” So I am going to make this my theme for the rest of this piece.

Naturally enough the theoreticians – the lawyers and the less-experienced franchisors and advisers – immediately piled in with comments such as “None”, “It is theft” and “We have a zero-tolerance policy”.

Now I know from many conversations with franchisors in many countries, over many years, that in practice there is a tacit level in every network that is generally understood to be acceptable. You will not find it written in the operations manual but everyone knows what it is.

I have even been known to go further and state that: “If you have a franchisee that is not fiddling, they should not be running a business and you should not have selected them in the first place.”

That is not to encourage dishonesty, it is to promote acceptance of human nature, rather than torturing yourself about getting every last pound that is due to you, the franchisor. Besides, even if the franchisee is putting everything through the system, you can bet that not all their staff will be.

What chance do the rest of us have?

You can put in place whatever sophisticated systems you like, but there will always be a way round it. Even an HMRC inspector once told me: “We aim to get 90 per cent of the tax, 90 per cent of the time.” So if they cannot get it all what chance do the rest of us have?

Many years ago I knew a franchisor that was paranoid about franchisees not declaring all their income. He was one of the first to introduce a central telephone number for all enquiries, whereby customers paid by credit card in advance, for provision of the service to be provided by the franchisee.

One day I had cause to use such services. Once finished, the operator asked me if I was happy, which I was, then handed me an unbranded business card and said: “If you need us again, just give me a call on this number.” So much for systems.

Retailers budget for shoplifting, which they call shrinkage, simply accepting that there will be some as an unavoidable expense of doing business. Persistent, serious offenders will get caught and prosecuted.

Persistent, seriously under-declaring franchisees should be caught and terminated, but do not worry about the occasional bonus that they award themselves. Better to spend your time improving the business so that everyone’s overall ‘take’ goes up, however it is taken.

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