Franchisors Must Get House In Order to Sustain Growth
Business in the quick-serve industry is finally trending up, and with lending becoming increasingly available to operators, franchisors may soon find themselves with more prospective franchisees clamoring to get on board with their brand.
In order to accommodate franchise growth, two law experts say there are several things franchisors should do to make sure their system is in order.
Elizabeth Dillon and Gaylen Knack, principals with law firm Gray Plant Mooty, presented their tips at Franchise Expo South in Miami in a panel entitled “Taking Your Franchise to the Next Level.”
Dillon and Knack recommended that franchisors “get their house in order” by combing through and straightening out their documents, manuals, and other communications with franchisees. One such document is the franchise’s operations manual.
“It’s a really great tool for your franchise system,” Dillon says. “Your system’s always changing and you need to communicate that to your franchisee.” Dillon recommends franchisors post their operations manuals online so they can be easily accessible to operators when changes are made.
Expectations of franchisees should also be very clearly communicated within the operations manual because, Dillon says, it can separate the franchisor from responsibility if the franchisee gets in trouble with the law.
“You can get yourself in trouble with your operations manual, or you can use it to protect yourself,” she says.
Other tips Dillon and Knack suggested for franchisors included creating a Financial Performance Representation (“But if you use data that’s unreliable … you shouldn’t be using it; sometimes the data doesn’t tell the story you want to communicate,” Dillon says), using standard form vendor agreements across a franchise system (“It sets expectations of that vendor and gives you some comfort,” she says), and establishing thorough franchise resale programs for franchisees (“It helps weed out the bad franchisees and brings in new blood,” Knack says).
Franchisors should also have franchisees establish financial benchmarking groups, Dillon and Knack say. Such groups bring together franchisees to compare sales, figure out agreeable sales numbers the whole system should shoot for, and brainstorm means to increase weaker franchisees.
“It’s a great way for the franchisees to compare notes,” Knack says, adding that franchisees with poor numbers are often encouraged by stronger franchisees. “If it’s your peers [calling you out] … at some point it sinks in.”
Similarly, a franchisee advisory council should be established for a company so franchisors can gauge the opinions of their franchisees and take advantage of their on-the-floor experience with the brand.
“Franchisors should be proactive,” Knack says. “If you wait until franchisees are pushing an issue, you’ve waited too long.
“You want to leverage the people down in the trenches to help you.”
By Sam Oches