Despite the challenges of COVID-19 for many franchise systems, franchisors can still be successful in supporting their current franchisees and recruiting new franchisees. In this webinar, Steve Beagelman, President & CEO of SMB Franchise Advisors, discusses the best practices for improved franchise development during the COVID-19 “new normal.”

Franchisors must begin by ensuring that franchisees are receiving enough support because development relies on strong franchise owner validation. Franchisors need to lead in protecting the brand and maintaining bottom line profitability. They can do this by (1) making sure that franchise owners, customers, and employees feel safe, (2) helping franchisees leverage programs (like the PPP program) and relationships (such as with landlords and vendors) to maintain profits, (3) communicate clearly and frequently.

If COVID-19 has had a sustained impact on your business, your franchise system may benefit from short-term reductions in fees that franchisees pay. Another consideration for incoming franchisees is adapting the start-up obligations and development timeline to reflect supply chain disruptions and operational restrictions.

Creating engagement with the brand benefits both current and prospective franchisees. For example, videos featuring franchise owners, customers, and members of the franchisor team are powerful ways to show brand culture. Videos are particularly useful because they can be adapted for multiple platforms.

Finally, franchisors should reevaluate their marketing and sales efforts and try new tactics. Perhaps your ideal franchise candidate has changed with the pandemic and you need to reach him or her in new ways. Maybe there is an opportunity to maximize social media marketing because people are spending more time online. In the webinar, Steve also presents the front-line perspective regarding franchise sales from franchisors who use third party brokers and sales groups.

The critical message of Steve’s presentation is that franchisors should not stop the process of franchise development and should instead adjust their efforts and expectations to reflect both the opportunities and challenges that pandemic has introduced.

Data privacy is a rapidly developing area of law that can create significant compliance obligations for small, medium, and large companies.  Data privacy, or the right of individuals to control their personal information, is addressed by a patchwork of state and federal laws. Knowing which laws affect your business can be challenging, especially if you are not in a highly regulated industry like health care or financial services.

CarlieThe key to general compliance with many data privacy laws is to understand what your business is doing to “process” personal information. Processing includes collecting, using, storing, disclosing, and deleting. Your business must describe its processing activities in a privacy policy.

State and federal laws give the individuals whose personal information your business processes certain rights or declares certain prohibitions on your use of their information – all of which can affect your business operations. For example, the California Consumer Privacy Act requires you to respond to your customer’s requests to know what information you have about them and be able to delete or cease sharing it with other entities. The federal Telephone Consumer Protection Act prohibits you from contacting your customers using certain technologies without their consent.

Another component of data privacy law is implementing adequate data security measures. Data breaches affect major brands as well as small businesses. Understanding data security can help you both prevent problems and respond to incidents.

Complying with data privacy laws is a matter of urgency. Data privacy laws carry the risk of fines, government enforcement actions, or private suits. Additionally, the reputational costs of data breaches or misuse of personal information are significant. On the other hand, data privacy compliance will help you earn and keep your customer’s trust and help you innovate.

In this Flash Briefings by Manning Fulton webinar, Charles (‘Chuck’) H. Munn, Jr. and Carlie A. Smith discuss answers to the following questions about data privacy.

  • What is data privacy?
  • What is personal information?
  • How do I know what federal or state laws apply to my business?
  • What are the benefits of a data privacy compliance program and what are the risks of delaying compliance?
  • How do I get started with data privacy compliance?
  • How does data privacy affect my relationship with vendors?
  • What should I include in a data breach response plan?

If you have additional questions about data privacy, please reach out to Manning Fulton attorneys who can provide advice tailored to your business needs.

One central benefit that franchisees seek from joining a franchise system is the leadership of the franchisor’s team. This team controls the brand standards, leads national marketing, gives advice and support, and is responsible for brand innovation and development.

Item 2 of the Franchise Disclosure Document (“FDD”) discloses to prospective franchisees who these leaders are and their business experience. Item 2 also discloses who is involved in franchise sales and operations. However, under the requirements of the FTC Franchise Rule, not every leader, manager, or salesperson needs to be included. The below lists summarize who needs to be included in Item 2 and who does not.

Continue Reading Who’s Who in Item 2?

In 2020, banks had to contend with general new underwriting guidance in SOPs, COVID-19 specific underwriting guidance, and the rules about the Paycheck Protection Program (“PPP”). All of these circumstances impacted the availability of funding for franchisors and franchisees. Despite the uncertainties about the economy and trend towards more conservative lending, the good news is that banks are still issuing useful loans. In this webinar, Geoff and Sherri Seiber, the CEO and COO of FranFund, the leading full service franchise funding solution, discuss Small Business Administration (SBA) loan options for franchisees, analyze changes in the lending environment in 2020, and provide advice to franchisors about building their financial toolkits.

The SBA loans most frequently utilized by franchisees are the SBA 7A standard loan (for amounts more than $350,000) and the SBA 7A small loans (for amounts less than $350,000). The SBA also offers special working capital loans that are particularly beneficial to businesses. In the webinar, Geoff and Sherri outline the more specific eligibility requirements and considerations for these SBA loan products. By understanding these programs, franchisors can be a resource for prospective franchisees, which in turn helps the franchise system to grow and new units to open more rapidly.

Some of the important takeaways from the discussion of these loans include:

  • The importance of post-closing liquidity;
  • Unique changes in the working capital loan requirements;
  • The pros and cons of the Rollovers for Business Start-Ups (ROBS) option, which can be used as an alternative to a loan or to generate extra liquidity to qualify for a loan; and
  • The importance of gaining meaningful pre-approval (which often requires more than a local bank’s review).

Another critical takeaway for franchisors is that a successful financial toolkit includes strong relationships with not only accountants and lawyers, but also bankers. Franchisors (and by extension their franchisees) who had strong working relationships with a bank had an advantage in the pandemic lending environment and will continue to do so. Knowing the bank and interacting with trusted bankers helps franchisors meet their goals and needs.

The COVID-19 pandemic has dramatically impacted business in 2020, from government stay at home orders that prevented operations to adjusted customer service capacity or additional safety procedures. Some of these changes to your franchise system may be what the FTC or states regard as “material”, meaning the change likely affects a prospective franchisee’s conduct or decisions with respect to the purchase of the franchise.  If a change is material, then the franchisor has an obligation to amend its FDD to account for the changes.

Federal and state law provide standard guidance about what is a material change, and in June 2020 the North American Securities Administration Association (NASAA) issued additional guidance specific to the pandemic. The major takeaways from these guidelines were that more than temporary changes to the way that the franchise system delivers goods and services or operates need to be included in an amendment.

Even more significantly, the NASAA guidelines impacted what franchisors can disclose for a financial performance representation (“FPR”) in its 2020 FDD. The guidelines emphasized that merely having historically accurate information from pre-pandemic operations is not enough to prevent the FPR from being misleading. For example, a 2019 gross sales disclosure for a dine-in restaurant may not be reasonable given the year-to-date 2020 gross sales that are significantly behind 2019 sales. Each franchisor must carefully review the NASAA guidelines to determine if its FPRs are still supported by a “reasonable basis.” If not, then Item 19 needs to be updated to reflect pandemic operations or needs to be removed.

In this webinar, Manning Fulton attorneys Ashley Nielsen and Carlie Smith discuss the implications of the NASAA guidelines in more detail and explain how to move forward if you’ve determined that a pandemic-induced change to your franchise system is material.

Businesses are increasingly defined by the technologies they use internally or that they offer to their customers; franchisors are no exception Technology is interwoven into the way that businesses think about themselves and the world. For example, Amazon famously declared itself first a technology company that “just happens to do retail.” Developments in technology distinguish companies from their competition and open new growth opportunities.

Your franchise business likely depends of an array of systems to interact with customers, provide goods and services, and link franchisees to you and each other. Or, perhaps, those advancements are still aspirations for your system, and you want to leave the door open to introduce those technologies later.

Having the technology fee disclosed in your Franchise Disclosure Document (“FDD”) and included in your Franchise Agreement provides you with the flexibility to implement technologies systemwide and have your franchisees help bear the cost.

Continue Reading What is the Technology Fee and Why Should I Charge My Franchisees One?

Items 5, 6, and 7 of a Franchise Disclosure Document (“FDD”) are all about money – how much the franchisor charges for the goods and services it provides franchisees before the franchised business opens, how much the franchisee will pay to the franchisor throughout the business relationship, and how much the franchisee will need to invest to open the business. After reading Items 5, 6, 7, the franchisee must understand how much things cost, how much they’ll be paying you, and when they will be making payments.

It is important for you to give accurate estimates to avoid litigation risks and help prospective franchisees evaluate their ability to successfully finance and open the business. Continue Reading Franchise Disclosure Document (“FDD”) Items 5, 6, and 7 Explained

Your trademark is a critical asset in your franchise system. You work hard to cultivate the brand associated with the trademark and you carefully monitor how your franchisees and competitors use your trademarks. Registering your trademark with the U.S. Patent and Trademark Office gives you additional legal protections for this valuable intellectual property.

Continue Reading Trademark Registration 101

How to Avoid Litigation in Franchising

There is a host of issues that can arise in a relationship between a franchisor and a franchisee. If not properly addressed, some of these issues can mushroom into legal sparring or even full-blown litigation.

Common issues include the enforcing of system standards, franchisees performing below their and/or the franchisor’s expectations, adapting to changes in the marketplace, diverging values and principles, or compliance with federal and state laws that regulate the franchise relationship.

No matter what the particular catalyst, there are several critical steps a franchisor can take to help assuage – or even avoid – legal issues. Continue Reading How to Avoid Litigation in Franchising

Developing a Social Media Policy for Franchise Systems

Effective use of social media is challenging for any business, but creating a strategy that works for an entire franchise system can be even more difficult.  Once that strategy is developed, it needs to be supplemented with a social media policy that protects you and your franchisees.

Below are four things to consider as you develop a social media policy. Continue Reading Developing a Social Media Policy for Franchise Systems