Five issues facing franchisors

Finance to Table Education for Operating Your Restaurant

Whether you have established franchise locations for your restaurant brand or are relatively new to franchises, there are various issues facing your relationship with your franchisees that you’ll need to address.

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Here are five key areas that you should always keep in mind:

  1. Site Selection – Even if the onus is on a new franchisee to find a site, make sure it is a collaborative effort with them. After all, you want the franchisee to succeed. Get an understanding of the economics that go into developing that site to make sure that the costs for the build out of that location doesn’t put the franchisee behind the eight ball to begin with. Make sure they are selecting “A” sites rather than settling for ones that are available or “pretty good”.  Make sure you understand your current existing operations and an optimal level of space that is needed. You want to make sure that the footprint for the franchisee’s location is not too big or too small. Finally, consider partnering with local or national broker partners to aid the franchisee with their site selection process. Getting it right with site selection will easily recover the cost involved.
  2. Franchise Collaboration – Go out and speak with your franchisees to get input into how their business is going. While top line revenue of your franchisees brings royalty revenue to you, make sure you understand their costs involved and their overall operating performance. You want to make sure they are successful over the long run. Also, obtain franchisee input prior to making system-wide changes. You want your franchisees to have trust in any changes being made and feel like they were involved in the process. With that, solicit recommendations from them. Overall, you want them to have confidence in your management team that they have a focus on franchisee performance.
  3. Controlling the brand – You want to make sure your franchised concept is successful. Make sure you are providing the necessary upfront and ongoing training to your franchisees for them to succeed. Be sure to regularly review your brand standards to see if any changes need to be made. Also, consider using secret shoppers with your franchised locations to determine that proper franchisee operations and standards are being met. Stay ahead of any trends or anticipated changes in the restaurant industry, whether at a local, regional, or national level. You want to be proactive rather than reactive to anything that might impact your brand. Finally, look at ways to innovate franchisee operations.
  4. Franchisor Liability – Make sure that your involvement or decision making does not create any joint liability to you for actions of your franchisees. Certain decisions, especially employment related matters, need to be made solely by the franchisee with little or no involvement by you. While you may be a resource for guidance with franchisee questions on certain matters be sure that your franchisees are solely responsible for the decisions made. However, this doesn’t mean that you need to stick your head in the sand when it comes to what is happening at your franchisees.
  5. Marketing Fund Accountability – Develop proper internal controls for the approval and accounting of disbursements for advertising and marketing costs funded through franchisee marketing fund contributions. As there is heightened concern to the proper usage of marketing fund contributions, appropriate approvals should be obtained to support that the expenditures are qualifying marketing fund expenditures. Voluntarily provide internal marketing fund financial statements on an annual or semi-annual basis to franchisees to disclose marketing fund activity.

Contact your Henry+Horne advisor for more information on franchises.

Jonathan Poppel, CPA