By Franck Zaid
I have been involved in franchising in many capacities for over 45 years, as a franchise lawyer, mediator, ombudsman, arbitrator, expert witness, investor, corporate franchise consultant, member of franchisor advisory boards and executive director of franchise associations. Through this broad involvement, I have seen many common challenges faced, albeit from various angles, and many common mistakes made. To meet these challenges and avoid these mistakes, the key is to adopt a simple and pragmatic approach based on certain fundamental values.
From a purely legal standpoint, there are many common challenges and mistakes in the franchising industry, including franchise agreements that are outdated, do not reflect adequate attention to detail, or do not sufficiently reflect the unique characteristics of franchises. a particular franchise system, as well as franchise agreements. deficient disclosure materials in one way or another. Other outdated or incomplete collateral documents may include leases, subleases, personal property security agreements, warranties, intellectual property or software licenses, intranet use agreements, and policies. of social media.
Some franchisors identify but fail to protect their intellectual property, especially trademarks, while others fail to meet their system standards when dealing with non-compliant franchisees. In some cases, they don’t even know the business and industry laws and regulations or standards that affect or regulate their type of franchise system.
It is essential that franchisors stay well informed and stay alert to such issues. These issues can be minimized by retaining the services of competent legal counsel with experience in franchising. Franchise attorneys can proactively review and revise a franchisor’s documents nationwide.
Business and financial issues
Franchise systems also face common business and financial challenges. Undercapitalization of the franchisor, for example, can lead to an inability to maintain and develop a system, which, in turn, can sow discord among franchisees.
There may be a lack of an appropriate and detailed financing program for the franchisor and the franchisees. And when there are incomplete and/or overdue records and reports from franchisees, it may be due to the franchisor’s inability to monitor and enforce franchisee performance. Franchisees should be wary if their franchisor fails to provide ongoing service and advice, raise sufficient funds to develop a successful national advertising program, or negotiate the best commercially reasonable terms possible with suppliers regarding pricing, compensation, l assistance and discounts.
These issues can be partially resolved by working with a business advisor or consultant experienced in franchising, but the franchisor should also familiarize themselves with industry trends and specific systems, including social media policies and electronic point of sale and reporting systems. And the franchisor must be prepared to provide timely financial and operational advice and assistance to its franchisees.