My Podner in this episode is me, Kit Vinson (finally!), and I’m going to talk to you about what franchisors should know about their franchise operating manual. The guest host for this episode is Mr. Jack Monson from Social Geek Radio.
Kit Vinson Intro
Get to know Kit Vinson
Topic Segment ?The franchise operating manual
TOPICS DISCUSSED IN THIS EPISODE:
What?s Included in a franchise operating manual?
Every manual is customized to the industry of the company, but there are elements of a franchise operating manual that are common to all manuals.
Human Resource chapter
Daily Operating Procedures chapters
What is the process for producing a franchise operating manual?
Creation of the custom outline for the manual
Legacy documentation review
Identification of the content experts
Information gathering phase
Make the manual creation process fun so that you can start the flow of your team?s creativity juices.
How often does the typical franchise manual need updating?
Manual updates should be completed on a regular basis. Younger franchise systems will need to update their operating manual more frequently because their systems seem to evolve at a much faster pace than that of a mature franchise system.
If you do not keep your franchise operating manual updated regularly, you increase the probability of you having to explain to a judge why your manual isn?t up-to-date.
How are franchise operating manuals typically distributed to the franchisees?
Hard copy (paper)
Web based platform (Wiki-style)
Hard copy manuals have extreme limitations. They are not secure. They are only a snapshot of your system on that day. Media limitations.
PDF manuals are searchable, but they are not secure. They are also a snapshot of your company?s system on that day.? They are relatively easily to update but you run the risk of having multiple versions of your manual floating around your system.
Web based, online operating manuals are secure, they are extremely easy to update, you can track your franchisees activity in the manual, and you can include multimedia content such as videos.
What are the functions of a franchise operations manual?
First, the Franchise Operations Manual is the authority document of the franchise System Standards. The System Standards are the standard procedures that a franchisor requires of all franchisees in order to duplicate the customer experience in every location. The customer experience is the driving force behind profitability. If you can duplicate a favorable customer experience, then you may have a business that you can franchise. If you have a well prepared Franchise Agreement, it will refer to the Franchise Operations Manual as the System Standard. This way, as your system grows and your System Standards change, you only have to update the manual instead of updating the Franchise Agreement.
Second, the Franchise Operations Manual is the most effective tool for protecting your Brand. A company?s Brand is one of its most valuable assets. The Brand is also the asset that is at most risk when a company decides to franchise. When you franchise a concept, you are putting your Brand in the hands of other people, all of whom likely have different ideas about the best direction for the company. A properly prepared Franchise Operations Manual, with well-defined and organized System Standards, will be one of the few tools you have to manage the Brand and control the franchisees when they try to act on their vision for what is best for your Brand.
Third, the Franchise Operations Manual will likely be the principal tool for training new franchisees. It is the ?Your Company for Dummies? book. You have to assume that most of your franchisees will not have experience in your industry. They may not have any business experience at all. It is very common for a retired schoolteacher or a retired military person to invest in a franchise. This is not to suggest that schoolteachers or military personnel don?t have any business savvy, it is only to say that they were not formally trained in business and have not practiced it during their career. Your manual needs to be a document that not only trains them on your system of providing a favorable customer experience, but also one that brings them up to speed on how to manage a business.
Fourth, a well prepared documentation of the procedures that has helped make your company a success will help you sell your concept to potential franchisees. Put yourself in the shoes of a potential franchisee. If you received a Franchise Disclosure Document (FDD) that showed you that the company had a 50 page document describing all of its operating procedures, you might be a little concerned.
You will also take your Franchise Operations Manual with you when you meet with potential franchisees for the first time. In that meeting, you will attempt to sell the concept to the prospect. Like all good sales people, you will likely have a few sales tools to assist you. You will probably present a PowerPoint presentation of the concept, you will review the company?s performance in the FDD, and you will present the Franchise Operations Manual as your proof that you have a well documents system for success.
Fifth, you don?t get very many opportunities to convey your corporate culture to your franchisees. Initial training lasts a week or so. Annual conferences last a few days per year. Ultimately, it is the franchise operating manual that will have the most contact with your franchisees, so what better place to show them who you are.
Brendan Charles talks about what franchisors should be teaching their franchisees about site selection, real estate negotiations, and build-out. Bad decisions in these areas can be detrimental to the success of the location. Everybody has some skin in the game here. This discussion will benefit both new and seasoned franchisors.
Brendan Charles Intro
Get to know Brendan
Topic Segment ?Site Selection, Real Estate, and Buildout
TOPICS DISCUSSED IN THIS EPISODE:
You only get one chance to get the real estate right.
Real estate is one of the three main controllable in a franchise business model but real estate is only a ?controllable? until you sign the lease.
If you don?t know what your break even is BEFORE you start looking for real estate, then your real estate decision could break you.
#1 rule in site selection ? Never fall in love with a space.
The real estate brokers? incentives are not necessarily aligned with yours ? the more you pay in rent, the more the broker gets paid on commissions
Know exactly what your site selection criteria are BEFORE you start your search
How do you develop site selection criteria when you only have one location to go by?
Utilize the free services of your real estate broker to provide the demographic reporting
Once you have multiple locations in operation (data points), then you can compare performance with location attributes and fine tune your site criteria
Onboard your broker about the brand ? make sure they share the enthusiasm of the brand?s potential as they will be your #1 sales person when presenting the concept to potential landlords
Spend a full day viewing all available locations in the ?Market Tour?. Take copious notes on the good as well as the bad locations
Boil your options down to 3-5 locations
Time kills all deals. You have to move FAST after your market tour and get the letters of intent out quickly.
The franchisor should be very involved in the site selection process ? don?t sit on the sidelines
Submitting a good letter of intent is the most important step in the whole landlord negotiation process ? rent, term, tenant improvements, etc.
If you don?t get the Letter of Intent right, there is no way you will get the build out right, and if you don?t get the build out right, you?ll be behind schedule and way out of budget
Once the letter of intent is delivered, the landlord is on notice to respond, however, that doesn?t mean that you can stop looking.
Always have backup sites in your pocket
Use two LOIs to leverage the deals against each other.
Once you reach the lease stage, the due diligence of the space continues ? make sure that the space is exactly what the landlord advertised it to be. This is done with a site survey
The drawings from the landlord aren?t always accurate so don?t rely on them
It is best to utilize a national architect for every franchised location rather than local architects
Floor plan design in a restaurant ? the dining room is your money maker and should be maximized
Familiarize yourself with the design review process ? go down to the city offices and meet the people who will be doing the plan review
Identify general contractor bid pool ? qualify them ? Have they built in the market you are in? ? Do they have the relationships with the city officials, etc. Avoid too many GCs in the bid pool
At the time of the build-out, the interests of the landlord are in line with yours because they get rent money once you open your doors for business, so they can be a good source of referrals of general contractors.
Poorly planned design submitted to the city will stall the process
Be aware of a TAP Fee ? a fee by the city in order to tap into the utilities. This can be very expensive
Ensure you have a plan to get your FF&E paid for and delivered on time according to the contractors timeline
Qualify the bids by ensuring that everything in the bid is supposed to be there and nothing is there that isn?t supposed to be there. Be sure to clarify who will be responsible for what activities and purchases. Make sure there is a clear matrix of responsibility.
No hammer can swing until the building permit is issued
There is no return on investment for the franchisee to be on site every day once hammers start swinging, rather, they should be focused on the bigger picture of doing the activities in preparation for the opening day such as hiring staff and marketing for the grand opening
Andy Erskine and Bob Gappa of Management 2000 talk with us today about the importance of customer loyalty, what drives it, and how to manage it.
Andy Erskine Intro
Get to know Andy
Topic Segment ?Creating Customer Loyalty
TOPICS DISCUSSED IN THIS EPISODE:
What is customer loyalty?
Transaction count is NOT the same as customer loyalty.
Another term for disloyalty (brand adultery)
Customer loyalty is tightly woven into Brand, which is made up of the emotion that you create with your customers
What makes customers loyal?
?Loyalty is built around emotions and emotions come from the customer experience
?The way that you interact with your customer (operating system) is what creates positive or negative emotions.
?Repeat customers are a result of your team members creating an emotional bond with the customer through the delivery of your product or service.
?Brand standards should focus on creating the emotions that make customers want to talk about their experience with their sphere of influence and go back.
?The Operations Manual is in place to create customer loyalty.
?To understand what creates positive or negative emotions in a customer, we need to understand the customer journey.
?The customer journey is literally every interaction that a potential customer has with you before, during, and after doing business with you
?Visible versus invisible standards ? both affect the customer and loyalty. Invisible standards are those not customer facing, like ordering a sufficient amount of material to deliver the product.
?The issue with system standards is that there isn?t enough forceful compliance when they aren?t being followed and there isn?t enough positive reinforcement when they are, and so they don?t seem important to either the franchisee or franchisor.
?Brand icons are as important to customer loyalty as brand standards. Brand icons are the aspects of your business that you are absolutely known for.
?Emptions are what create the brand rather than a well-known company.
How do you measure customer loyalty?
?Technology is how to track customer loyalty through cell phones and credit card transactions
?Knowledge is power. Know your customers behavior data and use that to create the emotional connection in them to make them loyal.
?By understanding what customers value, we can create customer loyalty
?Prism will segment your credit card transactions into demographics and behaviors
What do you do with customer loyalty data after you get it?
?Data helps you refine your message to your real customers ? understanding what they value so you can deliver the value that they want, which in turn creates loyalty
?Don?t confuse frequency due to convenience with loyalty.
What should I be doing today as it relates to customer loyalty?
?Start enhancing what it is that the customer values by understanding who the customer is.
?Stop thinking of yourself as a franchisor and start thinking about yourself as a steward of a brand.
?Stop having a franchisee advisory council and start having a brand advisory council
?Answer three critical questions. Know who your customers are. Know what they value. Know how to enhance what they value.
?Know how to make their experience personal.
?Help the customer make a connection to your brand
?Select employees, don?t simply hire them.
?Focus on how to create a great place to work
?Team members should know that their job is to create an experience that makes the customer want to come back
?Training a team member is usually only focused on the activity, which is simply skills, knowledge, and abilities. In addition to that, you should focus on developing people?s understanding and emotional commitment to the purpose of their job, which is to get the customer to want to come back.
Red Boswell talks with us about how to generate franchisee leads. This is one of the hottest topics with franchisors. This discussion will benefit both new and seasoned franchisors.
Red is a unique character, and I mean that in a good way. This guy has been driven to make money ever since he was a kid. Starting in grade school when he was selling NFL pencils for a profit, into hos twenties when he build up a pet services franchise system? all the way up to 148 units. He?s been operating in the world of franchising practically his entire adult life. He?ll give us more details in just a few minutes.
Red now gets to fuel his business building passion as President of the International Franchise Professionals Group (IFPG), The World?s Largest and Most Respected Franchise Consultant Organization.?.
Red Boswell Intro
Get to know Red Boswell
Topic Segment ? Generating Franchisee Leads
TOPICS DISCUSSED IN THIS EPISODE:
The cost of a lead
The average cost of a lead in 2019 is $10,000
That number does not including commissions
That number includes large companies that don?t need to spend anything for leads because their brand is so well knows that they don?t need to advertise to get leads
Small companies usually pay a lot more to generate leads since their concepts usually don?t have any brand recognition
16 sources of leads
Consumer / Clients
Industry / Conversions
Live events / Expos
Mobile / Roadside
Upgrade / Multi-unit Operators
The marketing mix is a moving target and is different for every concept. There is no silver bullet, one size fits all solution for the marketing spend mix.
Do a lot ? do it for a long time ? test and measure
Every option will involve one or all of these three
The trick is to utilize the options that require the resources you have the most of.
Red?s Favorite Five
Red says that every solution must be customized to the individual concept, but if he HAD to pick his favorite five, the would be:
Best option for any size franchisor
You pay to be a member then pay a commission per close
Many broker groups won?t accept smaller start-up concepts
Big saver of time and resources
Hire a PR firm
Find one who is familiar with the world of franchising
IFA members a plus
Validate with their past clients
Converting existing business people who are struggling
You never know who may be disenchanted with operating their own concept and who would love to convert
These are cold calls usually
Live Events / Expos
Usually between $5k and $10K per event
Use common sense and work it hard
Energy ? follow-up ? is key
You could make online all five
PPC Pay per click / Banners
SEO of your own franchise site
Develop a GREAT portal that grabs and tracks leads and conveys the information well. Portals tend to generate? a lot of volume with lower quality, but still worth the spend
Social media posting
Big data targeting
Job boards ? make a job advertisement? with the tag ?some investment required? ? describes a dream job
Bonus Source: Guerilla Marketing
Example: flyers on every windshield at the local franchise expo
Common mistakes made by franchisors as it relates to lead sources:
Lack of infrastructure ? be able to walk away from your business for 6 months
Don?t try to run your business and franchise it all by yourself
Franchise Development person
Onboarding / Training person
Field support person
Lack of good ops manuals
Not charging enough for the franchisee fee in order to pay for the costs associated with lead generation and other expenses
Negotiate a broker commission too low ? nobody will show your system if the commission is too low
Rob Vinson talks with us about Franchising 101 ? Where to start when you backed into franchising by accident, and don?t know where to go.
Rob has been a franchise attorney for 26 years. He was a partner at the prestigious law firm of Strasburger and Price, which is now Clark Hill after an April 2018 merger. Over 13 years he worked his way from associate up to partner. In 2001, he started his own law practice of Vinson Franchise Law and has been doing that ever since. He works, and has worked, with clients all over the United States as well as internationally.
Rob is also a founding partner of FranMan Inc, a company that specializes in producing franchise operating manuals.
In 26 years Rob has accumulated a great deal of experience that he is going to share with us today.
Rob Vinson Intro
Get to know Rob Vinson
Topic Segment ? Franchising 101
TOPICS DISCUSSED IN THIS EPISODE:
?What is Franchising?
?Business Format Franchising versus Product Distribution Franchising
?What is the difference between franchising and traditional licensing?
?What are the three elements that must be present in order to be considered a franchisor by the FTC?
?Just because you may not be considered a franchise by the FTC, you may still be considered a franchisor by the state government.
?Why franchise instead of expansion through company owned locations?
?What types of business lend themselves to franchising and which don?t?
?What elements of a business does Rob look at when advising a client on whether the business is ?franchisable??
?What resources are available to a new franchisor to help navigate the waters of franchising?
?How can a franchisor find a franchise attorney?
?What should the franchisor consider when selecting a franchise attorney?
?What services do franchise attorneys offer to franchisors?
?What and why is the FDD and Franchise Agreement?
?What are the dangers of a new franchisor using a template to create their own DFF and Franchise Agreement?
Stan Friedman talks about Customer Relationship Management software, or CRMs, and how franchisors can best utilize them to manage franchise leads.
Stan Friedman is a 31-year franchise veteran and is passionate about franchising. In fact, this guy lives and breathes it. Stan is the president of a company called FRM Solutions. FRM delivers CRM solutions, designed specifically for franchising, but to call it a CRM is like calling an elephant a mouse, just because they are both gray.
Before FRM Solutions, Stan held C-Level roles at: Blimpie International, Wing Zone, Maggie Moos and Tutor Doctor. Stan also produces and hosts ?Franchise Today,” a live, weekly podcast on BlogTalkRadio.
Stan Friedman Intro
Get to know Stan Friedman
Topic Segment ? CRM Software for Franchisors
TOPICS DISCUSSED IN THIS EPISODE:
?Brief history of CRM
?What is CRM today
?How is CRM used in franchising
?Can a franchisor get by without CRM at first
?When does a franchisor need to graduate to CRM
?How to choose a CRM
?What is FRM Solutions
?The features of FRM Solutions
?The types of information a franchisor need to be managing
?the juggling act that a franchisor has to do when business gets that busy
?Sortable, Reportable, and Dashboardable
?Candidate Gate ? Franchisee Gate
?Gating the candidate experience versus free reign
Art Coley talks about how to develop a franchisee recruitment system that will attract higher quality franchisees to your system.
Art is the CEO of a company called CGI Franchise, right here in Texas.
Art has served as President of a nationwide children?s technology education franchise where the brand had double-digit sales growth, opened a record number of new franchise territories, and was launched in the U.K., Australia, and Canada.
With a decade of global leadership and sales positions, he has been responsible for driving system-wide revenues and overall business operations for Top 200 franchise brands including a turnaround role in 2012 as the President and CEO for AlphaGraphics.
Art accepted the President and CEO position in May 2015 with Franchise Source Brands International, which owns several brands including: The Entrepreneur?s Source, AdviCoach, and ZorSource. Art is considered one of the top franchise development professionals in franchising.
Art Coley Intro
Get to know Art Coley
Near Business Failure – Art’s “E-Myth” Moment
Topic Segment ? Franchisee Recruitment
TOPICS DISCUSSED IN THIS EPISODE:
What is the founder?s trap that keeps many small business owners from growing to their Business? Becoming royalty self-sufficient needs to be a franchisor?s #1 goal at first.
Most franchisors never understand that franchise recruitment is a separate business that requires a separate skill set.
The value of a franchised business in not built on selling franchises, the value is based on unit economics.
Traditional franchise recruitment systems – what?s good about them – what?s bad about them?
What do you mean when you say ?Disillusioned? franchise system?
9% of all franchisors have ever made it past 200 locations
20% have ever grown past 100+ units
The secret to franchise recruitment is having a system and implementing the system properly
What is Recruitment Operating System all about?
Discovery Culture versus Sales Culture – what does that mean?
Why is ?Executive Buy-In? so important to a successful franchise recruitment system?
Building a recruitment operating system isn?t for a bunch of wimps!
What are the 4 Pillars of the ROS System?
8 Step Discovery Process
Any franchisor who is not doing some sort of Discovery Day is making a massive mistake.
Managing the handoff to Onboarding ? Why is that important?
When there is no communication between Onboarding and Recruitment teams, the quality of the new franchisees will never improve.
What are the three phases of the discovery process? What do they mean?
What are some of the key metrics that every franchisor should be following regardless of what recruitment system they use?
What is situational leadership and what role does that play in the recruitment process?
What role does a good CRM play in the recruitment process?
Communication is key in every organization, but you say that communicating with existing franchisees is really important. Why?
Angela Angela Cot? of Cultivate Advisors, talks about Franchisee Compliance, or as she likes to call it, franchisee success. This is all about how to keep the franchisees operating under the franchise system standards.
Angela cut her teeth really early on in the world of franchising as the daughter of Max Voisin, founder of M&M Food Market. If you are listening from the U.S., you may not have heard of M&M but if you are from Canada, with about 500 locations in its prime, M&M Food Market is a BIG deal. She worked on both sides as both the franchisor and as a franchisee running three locations of her own.
Angela has been interviewed on shows such as Social Geek Radio, Franchising Rising Podcast, Tutor Doctor Podcast, and Own Up, Grow Up Podcast. She has been written about in multiple publications such as Global Franchise Magazine, Franchise Blast, Canadian Franchise Association, Douglas Magazine, The Franchise Voice Magazine, Franchise Canada, and a few more
Get to know Angela Cot?
Topic Segment ? Franchisee Compliance
TOPICS DISCUSSED IN THIS EPISODE:
All franchisees should be as concerned about system-wide compliance as much as the franchisor because compliance to the system standards directly protects their investment.
Common reasons for lack of franchisee compliance are:
Lack of buy-in
Misunderstanding of why system standards exist
Franchisor creates an ?us vs them? mentality
Poorly trained field consultants sometimes lack ?soft skills? that are needed to manage the delicate relationship between franchisor and franchisee
How can a franchisor inspire franchisees to WANT to follow the system?
Start the ?system standards are good for your investment? education early in the relationship ? pre-contract.
Create and nurture a healthy ?franchisees monitoring franchisees? system
Regularly connect to the ?Why? a franchisee became a franchisee in the first place. Remind them of their goals and how the system standards will help them achieve their personal goals
Create easy and open opportunities for franchisees to collaborate with management
Create an open and easy mechanism for franchisees to give feedback to the franchisor
Utilize a mystery shopper service when it is needed
Justin Howe of H-Tea-O allows us to follow him through the process of franchising his business. This will be the first episode of that series. He discusses his journey in franchising; his successes and challenges in franchising.
Justin Howe Intro
Get to know Justin Howe
Topic Segment ? Franchising H-Tea-O Part 1
TOPICS DISCUSSED IN THIS EPISODE:
? Texas Tea ? the birth of the concept
? Franchising H-Tea-O
? Proving the concept
? Supply chain challenges
? Trademark challenges
? Creating a solid infrastructure
? Putting together the perfect team
? Becoming a franchisee in order to be the best franchisor
? No Item 19 challenge
? Real estate is one of the most important elements
? Establishing a solid franchisee training program
Drue Townsend shares? A LOT of what she has learned from managing the MARKETING FUND at FASTSIGNS International. The words ?Marketing Fund? can create anxiety in many people and Ms. Drue will demystify the concept and teach you exactly what you need to know to make the most of your company?s marketing fund. Rob Vinson from Vinson Franchise Law joins the conversation to help us with some of the legal issues that are related to the Franchise Marketing Fund.
Drue Townsend Intro
Get to know Drue Townsend
Topic Segment ? Franchise Marketing Fund
TOPICS DISCUSSED IN THIS EPISODE:
What Is A Marketing Ad Fund?
It is a collection of money paid by franchisees and managed by the franchisor, to enact defined marketing and advertising initiatives and bring value to the brand and franchisees.
It is in addition to any Royalties paid by the franchisee to the franchisor.
It is usually a percentage of gross sales (but could be a flat fee)
Marketing Fund By Laws:
There should be written By-Laws that outline how the fund can be used (what types of initiatives; pro-rata vs. major markets vs. national only), who makes decisions about it (as an example, highest ranking Marketing Person and CEO with Franchisee Ad Council input), who can sign contracts (often just the CEO and Marketing Person), where the money is kept (recommendation is that it is held in a different financial account with its own Profit and Loss Statement and Balance Sheet), who is providing the fiscal oversight and ensuring proper collection and use of the fund.
Sample Acceptable Uses of the fund
Build and maintain the brand and location?s central website
Create television ads
Run paid social media ads
Join a vertical industry association and exhibit at their trade show
Agency fees or marketing team member salaries/benefits
Marketing research projects
Franchise Development advertising
Legal fees for the new corporate office lease negotiation
Create training and operations manuals about safety
Pay for a convention cocktail party
Collect just to rebate back to franchisees who do X and Y
How to Justify an Ad Fund to a Franchisee
Use the dollars to protect and promotes the brand, which protects your investment today and should add value to your asset when you go to sell one day
It builds brand awareness and brand consistency when marketing and advertising has the same messaging strategy and look/feel; easier to control and do when centralized
Doing things ?on your behalf?; things that you ? or other franchisees – can?t, won?t or shouldn?t do on your own.
Looking for economies of scale (having a customer satisfaction survey platform that all franchisees can be part of through the Ad Fund vs. having each one find their own; having one website managed and hosted by corporate; buying national cable television vs. having 30 franchisees by spot cable), things that require compliance (email marketing platform); , would reach beyond one?s area and impact other franchisees positively or negatively (joining a national association and advertising on their homepage), etc.
The Importance of Franchisee Involvement in the Marketing Fund
Create a Marketing Ad Council (ours is called the National Advertising Council) and it has 6 elected Board Members representing the 650 locations in the US and Canada. Scale the number with growth; we started out with 3 and don?t have plans to increase beyond 6 anytime soon. Too many prohibits decision making.
The National Advertising Council ? or whoever works with the corporate team on Ad Fund projects ? can be different than the Franchise Advisory Council, or one group of franchisees can provide guidance to the corporate team on both types of topics.
You can have officers for the Ad Council, but because franchisees have their own businesses to run, we don?t have franchisees fill these roles and therefore then have to do the meeting minutes, organize administrative board events, etc.
What Should You Start Spending Money on Today From an Ad Fund
A corporately managed website with micro-sites/location pages on it
Google My Business page management
Directory Listings management (so all information about a location gets propagated accurately and updated across the web)
Brand social media sites (and organic content/ads on them)
Creation of some brand materials (depending on your product/industry and how you go to market; could be an automated platform or just have the assets/materials available
Point of Purchase materials
Print materials (brochures)
Digital Asset Management software
Common Pitfalls with a Marketing Funds
Don?t cap your Ad Fund fees; it will make future high-volume franchisees happy but it will keep your Ad Fund from growing (and you will have more locations to help)
Try not to require yourself to spend pro-rata. It is very hard to do well and sometimes money needs to be spent in an area of the country or on something that doesn?t benefit all equally. Ex: a sponsorship that covers only 15 cities, but has regional television and a big online effort; a state listing on a website where 50% of your locations do business.
Don?t collect money only to give it back through subsidies or rebates or matching. A lot of admin work, disagreements about what does and doesn?t qualify, etc.
Franchise Marketing Fund Tips
Start an Ad Fund from the beginning (as you establish your brand/franchise). If you don?t have one, start one now with future agreements. Consult with your accountant and attorney to determine if it should be set up as a separate entity (and what kind), what the tax implications will be, if it is subject to any accounting regulations (ASC 606 deals with revenue recognition).
If corporate can match any funds, it is a great way to soften the process of starting an Ad Fund
Collect Ad Fund fees the same way that you collect Royalties (ex: EFT on the 5th of the month). If you don?t pay your Ad Fund fees, you are subject to the same compliance issues and penalties as you have if you don?t your Royalties on time/ever
Encourage franchisees to spend money locally on things that make sense in their market ? local pay-per-click, display ads on local websites, radio, joining associations, sponsoring events, etc. Don?t fund discounts in national promotions either (ex: $1 off sandwich promotion should be absorbed by the franchisee; not paid by the Ad Fund).
Determine if king kong seo, freelance help or an in-house marketing team is best for your business. There are pros and cons for each, and in the long term, the best result is probably a mix of all three, but emerging businesses with small or no Ad Funds have to really stretch dollars.
Have governance and be transparent with your franchisees. Review financials each month and have annual statements audited. Share categories of spending at big meetings. Have a franchisee-elected Board of Directors that works with the corporate team to be a sounding board, communicator, tester, etc.
Have protections. Require a small percentage of the funds to not be budgeted ? to be held out of the budgeting process ? in case sales decline or the Ad Fund is owed money by the franchisees. It?s easier not to budget for something than to have to cancel programs later. As your system grows and your Ad Fund grows, have provisions in your guidance documents that allow you to reduce that percentage. (We don?t, and our By Laws require a 5% hold back or carryover, which is now hundreds of thousands of dollars a year).
Make your agreements broadly specific. Sounds like an oxymoron but give the brand room to expand what the Ad Fund can cover, but don?t make it too open-ended.
How to Set Up a Franchise Marketing Fund
Contact a franchise attorney and ask them for best practices in your industry, business and the way you market. See if they have sample drafts or if they can help you create an Ad Fund plan, By-Laws, content to include in your Franchise Disclosure Document and content to include in your Franchise Agreement.
Determine and set up your collection amount, audit and governance processes, etc.
Create a long range marketing plan ? 3 to 5 years ? based on estimated collected funds, and what those funds could buy. Prioritize the spending and share the big picture plan with franchisees and future franchise candidates so they know there is a plan, but clarify that this is based on assumed growth and that the plan is not contractually guaranteed.