3 tips for creating solid franchising deals
At left, Justin Pink, Scorpion, Bert Lane, Arby's, Richard Simtob, Zoup! and Chip Hamm, Kaplan & Partners discuss franchise agreements.
A franchisor depends on good franchisees to keep up its brand image and create loyal customers. It can be a challenge, however, to come to a fair agreement for both parties. The process isn't foreign, however, to Chip Hamm, an attorney at Kaplan & Partners Llp.; Bert Lane, senior director of franchise development, Arby's; and Richard Simtob, president and partner at Zoup!, who discussed how to negotiate franchise agreements at the recent Restaurant Franchising and Innovation Summit in Louisville.
The experts gave three tips during a session, called, " A Look at Legality: What to Consider in Franchise Negotiations," moderated by Justin Mink, senior vice president of sales, Scorpion.
1. Find the best fit
The presenters first emphasized the importance of finding the right fit for your franchise. They encouraged listeners to avoid candidates who simply look at the franchise as a fun investment that won't require much upfront work.
"We really hold strong to folks with operational background and people who are passionate about the business," Lane said during the presentation.
Simtob said restaurants need to find operators who understand the brand, especially when they are first starting out with franchising. Hamm said that an establishment's very first franchisees must be successful, so they can sell the brand to other potential candidates.
Have a great franchise-disclosure agreement
When you sit down with the potential franchisee, you need to make sure your franchise-disclosure agreement is as in-depth as possible.
Lane recommended that candidates should understand it so well they should be, "dreaming about the FDD." They need to have a firm grasp of the brand's values and the initial cost of the investment.
With FDDs, there is a danger of disclosing too much and too little. If they disclose too little, potential franchisees will be skeptical. Disclosing too much, however, can lead to competitors snatching up valuable data.
Hamm said his advice would be not to disclose as much as his fellow presenters would, but he also emphasized that the FDD would be different depending on the size of the franchise.
"If you are a successful, mature brand. Sometimes you can provide the sales data. If you are a smaller company, you might be more careful. The variation between your small and large score might be more sensitive," Hamm said.
Make room for improvement
No FDD is perfect, so every franchise needs to make room for improvements, especially since every franchisee has different needs.
Simtob brought up an example of how a franchisee might want to transfer the business to a family member. After performing this task, the franchisor could add instructions on how to do this to the FDD. This, in turn, helps build transparency.
This principle applies when franchisees run into problems that affect the brand, such as poorly maintained facilities. The presenters also spoke about when a franchisor simply needs to work with a franchisee to improve the business or when they need to take a more hardline stance.
"Not paying royalties is a reason to drop the hammer," Hamm said. "If it's something like an image or remodel issue, then we are back on development."
With all of these issues, the presenters agreed that franchisors need to check everything over with their lawyers first. Legal agreements are a major challenge, and franchisors shouldn't go in blind at any point.
Companies: Scorpion Internet Marketing
Bradley Cooper is a Technology Editor for DigitalSignageToday.com. His background is in information technology, advertising, and writing.www