Decoding the “Necessities” vs. “Nice-ities” for Emerging Franchise Brands | Fox Rothschild LLP
When a business is deciding to franchise its concept, the task “to-do” list is never-ending. Identifying the most critical issues and deciphering what are “necessities” vs. “nice-ities” for an emerging brand was the topic of last week’s International Franchise Association (IFA) Wednesday Webinar with speakers, Eric Schechterman, CDO of Benetrends Financial and Steve Beagleman, CEO of SMB Franchise Advisors.
After spending an hour with Eric and Steve hearing both of them give much of the same advice I have given my clients the last 15 years as well as learning some new tips, I thought it would be useful to share just a few of the important takeaways from the webinar. So what are the “necessities” according to Eric and Steve?
- A Compliant and Complete Franchise Disclosure Document. Not surprisingly, Steve stated that the #1 necessity is an FDD, which is the only legal method for offering and selling franchises under the current federal and state regulatory structure. Steve explained that he only works with clients who engage franchise attorneys. If a prospective franchisor wants to use its estates and trust attorney brother or general business attorney cousin, then he educates them on the needs for competent and experienced franchise counsel.
- Operations Manual. Steve and Eric emphasized the need for a fulsome and thorough Operations Manual tailored specifically to the franchisor’s concept. When there is a compliance issue with a franchisee, then the franchisor must have the ability to point to clear and delineated system standards.
- Franchise Facing Website. An emerging franchisor may have an engaging and informative consumer-facing website, but it needs a page devoted to franchising. Steve said the #1 differentiator between those emerging brands that succeed vs. those that struggle, is the ability to recognize that they are no longer just in the pizza business or dry-cleaning business – they are in the selling franchises business.
- A Sparkling Clean Headquarters. A new franchisor spends the money on an attorney to draft the legal documents, a consultant to assist with the franchise system structuring and SEO, brokers and marketing to drive prospects. All that money is spent to get a prospect to the point of attending a discovery day to learn about the brand only to find corporate personnel unengaged and lackluster and the offices cluttered and sloppy. Engage your team and houseclean!
Steve and Ben were also generous enough to share what not to do. What were the top mistakes to avoid?
Choosing the wrong partners. It is very hard to say no to a prospect who is ready to pay that initial franchise fee, but finding the right franchisees is critical in the early stages. Fight the urge to sign franchisees who set off red flags, do not fit your brand’s culture or adhere to your values.
Expanding beyond your reach. If you are based on the east coast, then it is not advisable to sell your first units in California or Arizona. This is especially true for brick-and-mortar locations. Unless you have a very large footprint of company owned locations and infrastructure already in places, then it may be difficult to provide the on-going training and support or even organize the logistics of ensuring products, ingredients or on-going inventory.
Giving up too soon. Steve and Ben said a new franchisor cannot give up on attending events just because they do not prove immediately successful. Conventions, conferences, and expos exist because they work. Maybe not right away, but over time the relationships a new franchisor creates and the continuous brand exposure will provide a return on investment.
Steve and Ben both reminded attendees that it was never too late to right the path. If you granted too large of territories to your first franchisees, then you can amend your FDD for future franchise sales. Operations Manuals can be updated and polished. Websites can be refreshed. Find the right advisors and keep pushing!
[View source.]
