Franchisee Associations for Newer Franchisors

The best time for any group of franchisees to form an effective franchisee association is ASAP

Franchisees of more recently established franchisors are highly likely to discover anomalies in the reality of their business relationship with their franchisor and in the operation of their businesses, compared against what they were told to expect by the franchisor. These anomalies cannot be dealt with one person at a time. In most instances one person at a time approaches to the franchisor about early onset anomalies don’t even get the same answer, and in many instances the answer may even be “Gee, this is the first time we heard this. You’re the only one with this issue.” YEAH, RIGHT!

Franchisors are taught to believe that they have a franchisee agreement that gives them all the options. As a law school exam question, this would seem to be a correct assumption on their part. As a matter of what the realities can be, however, many of the issues facing franchisees of young franchisors can effectively be addressed if there is an effectively managed franchisee association.

One leverage advantage of having a well run association is that it is a clearing house for future franchisee prospect due diligence inquiries. Illustratively, under the new FTC Franchise Rule, upon proper demand, a franchisor must include information about an existing incorporated franchisee association in the UFOC, including effective contact information such as the name of the association, its physical address, its email address, and its web site.

When a franchisor knows that its franchisees can provide “real” information to franchisee prospects in the group name, eliminating for the most part setting up individual franchisees for retaliation, and that what the association says will affect its ability to sell franchises, the playing field starts to level out. And this is only one very important and obvious (once you think about it) reason to have an association.

Remediation of problems that are actually or potentially pervasive to the system can only be done at best mode/best practices quality level through such an association. Newer franchisors are always finding things they wish they had done differently. They believe that all they have to do is change a few pages in the operating manual and all the franchisees have to comply, no matter the expense to the franchisees of having to do so again and again as the kinks in the system are sought to be ironed out. How these issues are handled can be made a great deal more palatable if there is the organizational strength to cause the franchisor to recognize the value of pre-mandate coordination with the franchisee population. Consensus, like sugar, helps the medicine go down.    

Franchisees who lack a good association are left to their own devices to sort out their issues. That is the most error filled approach and the most problem creating approach. If they have a professionally managed association, run by competent franchise counsel, they have the advantage of having immediate access to a franchise focused attorney who specializes in their particular franchise and its issues, and who can be the clearing house for everyone. Aside from the obvious cost effectiveness of this kind of resource, they are also spared the vicissitudes of having to go to someone who may not have the depth of experience in franchising or in their particular franchise system. Every time one of them has to go get help, the resource they have to go to has to start at zero, with no experiential bank from which to draw in dealing with their problems. 

More frequently than not, the lawyer they deal with has little or no idea about any of the important issues in franchising, much less any qualifications to deal with questions about this particular franchisor. Franchisees go in the wrong direction and make tactical mistakes because they lack proper guidance. Most business lawyers, for example, believe that the good faith and fair dealing rules of the Uniform Commercial Code apply to franchise relationships. They don’t. Many believe that there is such a thing as the Fair Franchise Practices Act. There is no such statute. Accordingly, they are at sea at precisely the moment when what is required to prevent them from making enormous mistakes could have been readily available if only they had an association run by a resource that understands the law and the chemistry of franchising.    

Initial small groups of franchisees can have such a resource for about $ 500 a year per franchisee, plus whatever the assessment has to be to have a professional website. As the association grows because each new franchisee is coached to appreciate the value of membership and the risks of being left out, a treasury is accumulated that makes it even more worth while for experienced resources to be interested in leading the group. If a lawyer doesn’t fit the pistol of the majority, they can simply change lawyers with no obligations that could affect the association or its resources. Associations change lawyers all the time. The lawyer keeps the association as a client by being truthful, competent, effective and by providing prompt service whenever it is requested. The benefit of knowing what not to do is often the most critically beneficial immediate service that is needed and that is usually lacking. The angry, accusatory email and phone call have ruined many prospects for effective relationship management. Knowing to call association counsel and get started on the right track is worth the dues all by itself.

Dues don’t cover everything. They cover the day to day clearinghouse and association management functions and the initial guidance on problem issues. If a franchisee has individual issues that are not pervasive throughout the association, the handling of those problems are not included in the dues, but there is immediate access to higher quality resources than would otherwise be available. Litigation and special projects of significant magnitude require their own budgets. In the beginning, when there is little money if there are very few franchisees, even annual/quarterly meeting attendance by counsel may need its own assessment. But in a few years, what can be accommodated within the normal membership dues structure becomes more and more significant.

Having their own well run association is, in my less than humble estimation, one of the most cost effective things a smaller group of franchisees of a recently established franchisor can do for their own benefit.