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 businesses 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?
Tom Spadea discusses the benefits of properly managing the FDD and the Franchise Agreement, from the beginning, making sure to keep the end in mind. The “end” he speaks of is a possible acquisition by an investment company. What will they expect to see when they look at your franchisees contracts in your files?
Tom Spadea Intro – 00:00:40 Segment 1 – 00:03:22
Get to know Tom Spadea Segment 2 – 00:24:40
Topic Segment – Managing Your Franchise Agreements with the End in Mind Bonus Segment – 00:57:15
Managing Franchisee Growth Segment 3 – 01:02:50
Topics discussed in this episode:
Where do most franchisors get it wrong? Many franchisors and franchise attorneys focus mostly on the substantive issues of the and forget about procedural issues related to the process – managing latent defects
Item 23 receipt page not being properly executed and filed
Guarantees not properly executed
Individual versus LLC signing FA/lease
You can have the best FDD and franchise agreement in the world, but if you don’t manage the process properly, it can cost you a lot of money in the short term with an unenforceable contract, and in the long run, upon exit.
It’s important to understand who the real audience of the Franchise Agreement is. It is the franchisee, but it is also a prospective private equity investment firm who may want to purchase your system in the future.
What is the process? Step 1: Make sure that the franchise agreement is up-to-date Step 2: Geographical Analysis – Ensure that the franchisor is registered in every registration state where the concept will be offered. That includes where the prospect is currently located as well as where they want to open a location. Both states must be registered if required by that state. Deliver the correct FDD for the state. Step 3: Ensure that 14 days pass between delivery and signing of the Franchise Agreement, not including delivery day and signing day Step 4: Spend the time to ensure that names are all spelled correctly, along with middle initials. Check the address, LLC name etc. Step 5: Prepare a custom franchise agreement based on the specific agreements made between franchisor and franchisee – do not use the sample franchise agreement that is included in the FDD. Deliver the document to all required recipients and ensure proper signatures Step 6: Ensure that the lease includes all of the required language as per the franchise agreement
There are many different software packages that can help you with each aspect of the transaction, but Spadea Law has the platform that hits every element. Compliance Map helps franchisors ensure that they are only offering the franchise in the proper states. The link to the Compliance Map software demonstration is below:
By Kit Vinson|August 4th, 2017|Franchise Law, Podcast|Comments Off on The Franchise Manual Podcast – Episode #16 – Is Three-Party Franchising Right for Your System?
Brian Schnell talks about Three Party Franchising – using Area Developers and Master Franchisees to grow your franchise system. Many people misuse these two terms, or use them interchangeably – Brian’s going to clear it all up for us.
Brian Schnell Intro – 00:00:40 Segment 1 – 00:02:28
Get to know Brian Schnell
Segment 2 – 00:23:53
Topic Segment – Is Three Party Franchising Right for Your System?
Segment 3 – 01:00:51
Topics discussed in this episode:
What is the difference between a Master Franchisee and an Area Developer
What is the Three-Party Franchise model?
Three Party Franchise model works very well internationally
Avoid the temptation of “0-100 franchisees quick” through three party franchising without a full understanding of what is involved. Don’t try to sprint before you know how to walk.
The conversation about Three Party Franchising shouldn’t take place without a full understanding of risks and benefits to all parties.
What is the necessary infrastructure before diving into a three-party franchising model? A full understanding of:
The infrastructure must exist somewhere; either on the franchisor side or the area developer side.
The functions of managing a franchise system are usually carried out by a team of corporate employees. It is not realistic to expect an area developer to fulfill the same functions plus operate a unit without the proper infrastructure.
Finding an area developer that is good at EVERYTHING is not likely. Try focusing on an area developer’s core competencies and supporting the area developer in the areas where he/she is weaker.
Don’t offload functions of managing a system to an area developer that can be more efficiently executed by the corporate office.
After you sign a master franchisee or an area developer, the system DOES NOT go into autopilot. The franchisor must stay involved and active.
Trying to fix problems in the three-party franchise relationship are much easier to correct early on, so stay connected and involved.
Educate yourself before trying to utilize a three-party model by talking to attorneys and consultants who have experience.
Manage expectations up front through a well-written agreement and ops manual
Paul Rocchio – IFA Procchio@Franchise.org
Contact Paul for information about joining the International Franchise Association
Book: Dare to Serve By Cheryl Bachelder
Servant leadership is sometimes derided as soft or ineffective, but this book shows that it’s actually challenging and tough minded – a daring path. Bachelder takes you firsthand through the transformation of Popeyes and shows how a leader at any level can become a Dare-to-Serve leader.
Mike Drumm of Drumm Law in Denver, Colorado tells us why your company’s FDD might suck. He points out issues in an FDD’s content and style that could make or break an FDD’s ability to help you sell your concept to prospective franchisees. Mike gave away most of the company secrets during this interview!
00:00:40 – Podner Introduction
00:02:24 – Segment 1: Get to know Mike Drumm
00:26:34 – Segment 2: Why Your FDD Sucks
00:55:06 – Segment 3: Quick Draw
Mike Drumm Show Notes
Why your FDD might suck:
It’s not written in plain English
You have “over disclosed”
You let your attorney or accountant write the first sentence that describes the concept
You didn’t brand the document
The FDD is not visually attractive and easy to read (pictures, charts, etc)
Item 19 doesn’t tell your story well
It doesn’t use a data sheet
Too many exhibits
Item 7 doesn’t include an average
It includes outdated technology references
During my visit with Mike, we go off topic and discuss some really important topics that every franchisor needs to know.
How to make the delivery of an FDD a memorable experience.