1. Be Consistent and Transparent in Preparing Franchise Disclosure Documents
Beyond fulfilling legal disclosure requirements, your franchise disclosure document is often your first chance to make a strong first impression and communicate your value proposition to prospective franchisees. This document should be accurate, comprehensive, clear, and transparent.
Prospective franchisees should understand what to expect regarding costs and risks, including build-out costs, inventory sources, royalty and advertising fees, and events of breach or termination. Transparency builds credibility and filters out candidates with unrealistic expectations. While poorly prepared or misleading franchise disclosure documents may entice prospects short-term, they increase the risk of litigation and franchisee disappointment, ultimately straining the entire system.
2. Target the Right Audience
When finding franchisees, quality trumps quantity. Not everyone makes a good franchisee candidate. Franchisors should identify what skills define a strong franchisee for their system and consider current needs.
Refine and target your search accordingly. Consider whether you are seeking a skilled team manager, a corporate professional pursuing a career change, or a proven business operator transitioning from another system. Targeting the right audience limits recruiting costs and increases the likelihood that prospects will smoothly integrate into your system and align with its goals.
3. Invest in the Success of Your Existing Franchisees
As a franchisor, your success is directly tied to your franchisees’ success. The more successful they are as business operators, the more successful you become. Support can take many forms: offering loans or financing programs for new or struggling franchisees, providing operational support and ongoing training, and implementing incentives or growth programs to encourage multi-unit expansion.
Existing and prospective franchisees talk. Fostering a reputation as a strong, supportive franchisor helps attract new talent. Conversely, a reputation for allowing franchisees to struggle or imposing punitive or arbitrary fines and policies can dissuade quality candidates from joining your system.
4. Handle Litigation Carefully
In franchising, litigation poses risk beyond liability exposure. It threatens the entire system. Legal judgments against franchisors often require disclosure in franchise disclosure documents and publicise system issues or gaps, potentially causing system-wide unrest.
Prospective franchisees can easily search judgments online, and news of system disruptions may deter them from joining. To mitigate risks associated with adverse public judgments, handle litigation carefully and, where commercially viable, resolve disputes before trial. Addressing issues before they become lawsuits and requiring private arbitration keeps internal conflicts from spilling into public view.
5. Retain the Right Support
You don’t have to navigate these challenges alone. Good franchise counsel can be instrumental to:
- preparing accurate, comprehensive, and transparent franchise disclosure documents that inspire confidence and limit future disputes;
- developing operational and disclosure systems tailored to your target audience;
- preventing public litigation by preparing franchise agreements that mandate private arbitration; and
- developing processes for addressing issues before they become contentious, and handling litigation carefully when it arises.
The franchise team at Alexander Holburn Beaudin + Lang LLP has a proven track record in all of these areas. If you have any questions or need help, please contact Loren Mallett, Matthew Nakatsu, or any member of our franchise law team.
Subscribe to RSS Feed