Between Now and Normal – Turning Back On the Franchise System - Part 2
By: Lynne D Shelton, Esq.
We all thought 2021 would bring us “normal”, but this seems to be the decade that just keeps on giving. We are in the middle of this 3-part series, we will look at some best practices, or possibly let’s continue to say ‘anticipated best practices’ on how to Turn Your Franchise System Back On.
As we look between Now and Normal, there are several key component areas that need to be addressed and focused on. In Part 1 of this series we discussed Communications, both with the franchisees and with the public. In this article we will discuss your communications with the prospective franchisees and the state examiners.
Communications with the Prospective Franchisees
Communications during this unprecedented time will admittedly vary widely. Some franchisee prospects will be excited by the current opportunities in the marketplace, including the reality of lowering the anticipated real estate fees, finding 2nd generation spaces, the ability to get landlords to pay for more tenant improvements, as well as, landlords agreeing to sign longer leases.
On the flipside, you also have the super cautious, probably first time business owner, that really wants to own their own business, which is scared by all the negative media, which is sometimes true and often fake. As a franchisor you need to have the bedrock solid facts trained into your sales people now more than ever.
Both franchisee prospects bring about a different set of hurdles to overcome. The excited prospect may need some reining in so that they do not get ahead of themselves on the onboarding process. For example one of our franchisor’s had a prospect who had not even received the FDD, and was already out looking at real estate, because the “perfect location” had just become available when a competitor’s franchisee closed their doors. And on the opposite side, the franchisor may need to hand hold their prospect and physically help them come to the natural conclusion that now is a good time to start their franchise business, by signing the franchise agreement, by helping them do a buildout timeline to see that even in best case scenarios the business would not be open until February 2022, which all health experts are saying that COVID 19 should have achieved herd immunity by then.
We think the franchise development teams of 2020/2021 should receive an Oscar, for best supporting role. Whether they are dealing with the excited prospect or the overly cautious prospect, they have no idea until they pick up the phone. They have to be ready for everything and anything, and pivot within a breathe, which is a far wider chasm than normal.
So here is to the franchise development folks, the franchise consultants, and the franchise brokers in our world – WE APPRECIATE YOU, AND WHAT YOU DO!
Communications with the Examiners in Registration States
Then on the other hand, it is a bit harder this year to appreciate our examiners in many states. First of all, as a reminder to all of us, myself included, let’s remember that they are just humans too.
As drafters (i.e. transactional attorneys) we have been hit with a lot this year. Usually our life is pretty steady and plannable, but not his year. We have been hit with new franchise descriptions that seem tame, but actually can flip some systems on its end, as far as disclosure is concerned. We have non-franchise committees rolling out rules that entirely have us questioning how we can modify the franchise system set up to reflect the franchisor in the best financial light possible; instead of the skewed balance sheet we were left with. Then we have governments and municipalities across the country who chose to handle COVID entirely differently whether to close businesses, reduce the size of businesses by 25%, only allow take out or delivery aspects, or only allow essential workers, to be closed to everyone, or to be fully open.
Dissemination of accurate information about the franchise system is always especially important. It is imperative that the point gets across that the franchisor’s leadership is taking things seriously and thinking critically. One of the ways that they can show this is by tracking accurate information across their franchise system and the variance that occurring state to state. Almost every registration state also requires that you update your Franchise Disclosure Document whenever there is a “material change”. Whether the franchise system pivoted and has grown its overall sales by 200% or is currently hanging on by a thread, both facts are a material change.
You need to tell the real story of what your franchisees are doing. If you have an Item 19 disclosure, you may want to consider a much larger disclosure than before. Taking it month by month, state by state might be the only way to accurately reflect what is happening financially within your system. For other systems that are mostly online, you can probably still get by with more lump sum statements of quarterly reports. Either way, ensure that you are sharing the facts relevant to your system, i.e. that you are allowing locations to come back online as it make sense for them to do so safely (if you are staggering re-openings), because you care about your “family of franchisee’s and their employee’s”. Then utilize the facts allowable by the laws, regulations and the actual numbers month to month and state to state to tell your story.
Examiners like to understand the particular franchise system. Share about what the franchisor has done and how they have trained the franchisee’s on how to keep the customers safe, especially with regards to cleaning procedures and quality control new standards. It is always best to provide examiners with information from authoritative federal sources, such as ftc.gov and this year cdc.gov websites to show you are working within the laws. In addition, you should also continue to follow and monitor those sites for best practices, as they become published and known.
These published best practices will most likely keep changing, so check back often and continue to train your state examiners about what the franchisees are doing based upon requirements of their state or their states ‘best practices’. By ensuring the examiner knows you are actively educating the franchisees and the public that you are following the CDC guidelines, you will help put them be at rest that yours is a brand that they can trust their states consumers (i.e. your franchisee prospects) with, and allow you to register your brand or renew your brand within their state.
Some brands are utilizing a ‘countdown to reopen clock’ on their websites for closed locations. The countdown clock counts down until the date that the current order to remain closed is over. You can always restart it if that date moves again. (Here’s hoping that does not happen). Everyone, franchisee’s and customers alike, are looking forward to your brand reopening, so allow them to help you in the celebration, and anticipation.
Ms. Shelton in a previous life was a franchisor of a large franchise system, and is currently a Senior Attorney for Shelton Law & Associates franchise law firm. Shelton Law & Associates (“SLA”) Attorneys have 50+ years’ business consulting, franchise and trademark experience. Their knowledge facilitates an understanding of a large variety of businesses, services and technologies. They help businesses protect their Brands through Trademark, Copyright, and Business contractual transactions. These services allow SLA to “Expand their Brand®” through Franchising. For Franchisors, SLA provides full outsourced in-house counsel and consulting.
Shelton Law & Associates additionally works with entrepreneurs buying franchises by assisting with Business Creation, Industry Evaluations, Franchise Disclosure Document Review, Fairness Factors, Opinion Letters and Negotiations.
For more information or to schedule a customized consultation for your business you can write to franchising@SLA.Law or call (866) 99-FRANCHISE
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