|
Information and Advice That Matters
|
|
In This Issue -- IFA Announces Continued Franchise Growth -- Develop a Program For Franchise Resales -- Interview With Mario Herman Franchisee Attorney -- Where Are Advertising Dollars Spent Plus Internet Facts In our last summer issue: an interview with Mario Herman, an experienced franchisee attorney and some great facts on advertising expenditures that are "fresh off the press". Ed Teixeira, Publisher - Carol Moccia, Editor |
|
IFA Announces Continued Franchise Growth
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The International Franchise Association announced in a press release, dated August 3rd, that the franchising industry continues to grow at a robust pace. According to a franchise industry study conducted by the IFA Educational Foundation and Washington, DC based Frandata, there were 500 new franchise concepts introduced in 2005 alone. Other highlights of the study included:
The study indicated that franchising is the source for more than 18 million jobs in the United States. For business owners considering franchising as a vehicle for achieving faster growth be sure to:
" Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all." Sam Ewing |
|
Develop a Program For Franchise Resales
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Traditionally, most franchisors have taken an "arms length" approach when dealing with franchise resales. Recently, however, a number of franchisors have taken a more proactive approach. Some franchisors utilize newsletters, websites and other vehicles for assisting with and facilitating franchise resales. When one considers the reasons why a person decides to sell their business it makes sense for franchisors to support this activity. Various surveys indicate that small business owners decide to sell their business for many different reasons. There is no reason to expect that franchisees are any different.
Since most of the factors fueling the desire to sell are negative, it follows that franchisees who have difficulty selling their business could represent a potential problem. If a franchisee is struggling to sell their business it could affect the operation of that location. I would propose that franchisors implement a franchise resales program. The components of such a program would be as follows:
Given the magnitude of the franchise industry and the increased number of franchisors having an organized program for dealing with franchise resales make a great deal of sense. Establishing arrangements with regional business brokers is the best strategy. This arrangement could include a reduced commission in return for being one of the franchisors preferred brokers. Regional firms like Bridge Business Brokers have over 120 brokers in the Northeastern United States. Bridge brokers already list franchise resales. There are many other business brokerage firms throughout the country. " I see life almost like one long University education that I never had- every day I'm learning something new." Richard Branson |
|
Interview With Mario Herman Franchisee Attorney
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Mario Herman is an attorney based in Adamstown, Maryland. He has been practicing law for over twenty years, specializing in representing franchisees. In 2004 and 2005 Mario Herman was named one of the “Top 100 Legal Eagles” by Franchise Times Magazine. He is also a frequent contributor to articles on franchising in the Wall street Journal. FKH I’ve been told that certain changes in franchise agreements over the past several years have given the franchisor more advantages in their relationship with franchisees. How would you respond to this? MH There are two primary reasons for franchise agreements becoming much stronger in favor of franchisors. First, franchisees have become more savvy and aggressive in protecting and defending their rights against certain franchisors. In many of these cases franchisees have prevailed. Second, reacting to franchisee victories, Franchisor attorneys have continued to strengthen existing provisions in the franchise agreement and introduced new provisions making it more difficult for franchisees to win their case against franchisors. FKH Are there significant changes in more recent franchise agreements that stand out? MH Liquidated damages provisions, which can enable a Franchisor, to obtain future royalties that were usually lost when a franchisee was terminated or closed down. Also franchisors have made the post-termination provisions virtually identical whether its a termination for cause or the franchise agreement expires. Franchisor attorney’s have also been careful to disclose additional information in the offering circular pertaining to the relationship between the parties. Its more difficult for franchisees to claim that they weren't aware of their obligations under the franchise agreement or the penalties imposed. FKH Based upon your experience how would you measure the amount of franchisee/Franchisor litigation? More, less about the same? MH I would say that there is more litigation now. Franchisees are more knowledgeable regarding franchising and more willing to stand up for their rights. Also, given the increase in international franchising many franchisees operating as master licensees have significant resources for litigating against the Franchisor, if they are aggrieved. FKH As an attorney representing franchisees is there a particular royalty arrangement, which you feel, is fairer than others? Fixed royalty versus percent of revenues as an example? MH The fundamental problem with the traditional royalty as a percent of revenues is that it bears no relationship to franchisee profitability. I would say a fixed royalty with a smaller fee in the first year might be the fairest. However, in that arrangement can be harmful to the franchisee if they fail to increase sales. FKH What advice would you give to a start- up Franchisor in terms of their franchise program? Especially in terms of maintaining positive franchise relations? MH Make sure the franchise documents are of high quality and well constructed in terms of the disclosure and franchise agreement provisions. Avoid ambiguities in the documents. Be sure to have financial and business qualifications for franchise candidates and stick to them. Don’t accept unqualified franchise candidates and risk future problems. Undercapitalized franchisees are a major cause of problems for both parties. Thank you for your comments. Contact Information: Mario Herman www.franchise- law.com 2987 Hope Mills Lane Adamstown, MD 21710 301-607-4111 mherman@franchise- law.com "Customers want brands that are narrow in scope and distinguishable by a single word, the shorter the better." Al Ries
|
|
Where Are Advertising Dollars Spent Plus Internet Facts
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Here are some interesting results from advertising research firms including forecasts for 2006. TSN Media Intelligence forecast for 2006 advertising expenditures:
The Internet continues to exhibit the fastest rate of growth versus all mediums. The estimated $20 billion spent on Internet advertising represents 13 percent of all dollars for 2006, which is equivalent to total radio. A study of the Internet and Web advertising by Interpublic Group's Universal McCann revealed some interesting results. The study examined consumption of online media by Internet users who had accessed the Web at least 11 times in the previous 7 days. They estimate that close to 100 million people in the US fit this profile.
A most interesting result of the survey indicated that 54 percent of respondents reported watching TV while online and 41 percent said they listened to the radio. The conclusion from all of this information? The Internet continues to digest more advertising dollars while ad spending on print media declines. Understanding how to reach existing and future customers through the Internet will mean the difference in advertising productivity and future success. " Half of every dollar spent on advertising is wasted. I just don't know which half " John Wanamaker considered the father of the department store and modern advertising |