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Franchise Performance Compliance Review, Indispensible

There is a lot on everyone’s plate these days. There is a lot on everyone’s plate every day in every successful franchise system. No one can rest on laurels or on anything else. What makes Sammy run is that if he doesn’t run he will be overtaken/left in the dust by others who are paying attention.

There are many arguments that sound logical for not checking up on the system’s performance compliance. We are busy. We are making money, so leave well enough alone. Our franchisees are having difficulties, so don’t add to their miseries. These arguments all sound rational. Following them and neglecting the reassurance that the system is performing as it should is not rational. This issue is proportionality and balance. No one should make compliance reviews a regimental pain in the neck for the sake of scaring people. There is a rational and absolutely necessary middle.

Sloppy performance undermines too many critically important factors to be ignored.

Sloppy financial performance undermines the quality of your balance sheet and credit. Sloppy financial performance also undermines respect for your agreements and ends up costing a lot of money. It will cost money in the sense that you do not receive what is due and in the sense that word gets around. Financial compliance rapidly becomes epidemic. What one franchisees gets away with is soon learnt by the other franchisees, and soon enough a small problem starts costing a lot of money. From a lot of experience it is well known that franchisees brag to each other about what they get away with. You can’t afford it.

Sloppy quality control is costly because it increases general liability risk and promises events fraught with extremely bad publicity. If your franchisees start to acquire a reputation for poor quality, you lose customer loyalty and you lose insurable risk quality within the system. We have too frequently seen the blaring press coverage of awful pranks and the consequences of over the hill inventory being sold when it should have been thrown out. The unrepaired infrastructure you should have known about but didn’t because you don’t visit the stores regularly and actually look at them with a critical eye will cost you patronage. Unauthorized products in your franchisees’ inventory are another story that makes the rounds. If your franchise system is mature and you lack up to date business information management software in the stores that you can poll, you can’t even begin to track what is happening in real time. The resistance to investing in up to date information management systems that you caved in on will be an expensive decision. Kindness never goes unpunished.

The failure to track criminal background clearance of franchisees’ employees and the I-9 compliance with immigration requirements are only two of several employee management protocols that will provide you with headaches.

The status of operations manuals currency is an article in itself. And if the franchisee stores are being compliance neglected, that culture has also spread into your company owned stores. Neglect is a disease.

The manner in which it comes out that you have been lax in compliance quality management is always painful. Illustratively, someone you may have helped is frequently the person fudging on the franchise agreement’s requirements. If you failed to get the requisite defensive paperwork when you cut him some slack, you will wish you had. Worst of all, should you have a chance to sell or merge the system that you really would like to accept, the other side’s due diligence on your company will blow that deal out of the sky when the sloppiness turns up. Passing muster in any merger/acquisition situation, as buyer or seller, is a test you don’t want to fail. And the more lax you have been about compliance, the more ammunition you provide to franchisees who might wish to prevent the deal you want to accept. I have seen this particular event on several occasions.

I often comment upon the need for periodic stock taking on where your company is on the management of many issues. Compliance is perhaps the broadest of those issues, and it is the issue where the most vandalism occurs.

You will find that the longer you have waited to police compliance, the more resistance you will meet when you decide you need to know where you stand. No one will fight you harder on irregularly monitored compliance quality control than your most successful franchisees. Your not having them accustomed to your monitoring with compliance reviews emboldens them to resist. And if they can resist successfully, you will wish you have not been in the franchise business, for when the successful franchisees decide to organize resistance to what you are entitled to, the second and third tier franchisees see a free ride opportunity and become their allies in the expectation that they will share in compliance avoidance.

The more lax a compliance enforcement regimen is, the more likely it is that some judge or arbitrator may seize upon that to exonerate a seriously breaching franchisee whom you might otherwise have leverage against for whatever purpose. What is in your agreement and what is in your operations manual may be seen as window dressing rather than substance if there is no policing of compliance throughout the system.

The most destructive possible repercussion of lax quality control regarding compliance is the potential for loss of your intellectual property rights that are the heart of your system’s identity. Abandonment is a well established defense to any claims of intellectual property infringement. Just how much sloth in policing quality control will suffice to establish an abandonment defense is a case by case fact issue.

There is a direct correlation between discipline and group morale. It is axiomatic that discipline is the training that makes punishment unnecessary. Life in any franchising company is a constant process of gently but firmly disciplining the system. When you get to that one really bad case in which you absolutely must confront a seriously breaching franchisee to keep the system from going haywire, your likelihood of success at that juncture will hang in major part upon the degree of professional compliance management you have employed.

I have actually litigated several cases in which the failure to engage the system on compliance issues almost put the company under. In every such case the lack of system discipline enabled breakaway movements to organize and gain traction over a wide constituency. When numerous franchisees are given an opening to share the expense of franchisor confrontation on common questions and issues, the chemistry for revolt is at critical mass. You definitely do not want to allow the circumstances of weak compliance to take you to that point.

We will show you how to manage compliance from the starting point at which you now are. We will also remain with you, at your pleasure, to avoid future slippage. The cost of compliance is far less than the cost of remediation through conflict. Every franchise system should periodically make it a specific point to take stock on where it is on the issue of compliance monitoring.

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