Steps to Form a Franchisee Owners Association

At the core of American Association of Franchisees and Dealers (AAFD) efforts to promote market driven franchise reform is the dedication to the growth and empowerment of strong and effective franchisee associations.

The recent amendment of the Federal Trade Commission FTC Franchise Disclosure Rule requires Franchisors, if requested, to include information in the Federal Disclosure Document (FDD formerly called the UFOC) about owners’ associations. This rule change will enhance the roles of franchisee associations within the franchise system they are a part of.

Why Form a Franchisee Association? The first step in forming an association is to develop a platform that answers the question why. Why should franchisees come together as a group? Oftentimes a current crisis can spur a group to form. While a current crisis might provide the impetus to form, a broader range of goals can lead to a more stable and sustainable organization.

Who Should Lead the Franchisee Association? First, whoever has the passion and zeal to get it done should lead the charge. However, the first thing the leader(s) should do is identify several outstanding franchisees who can command the respect of the other owners (and ultimately your franchisor), and who will be influential in attracting members into the association. Attracting these top performers is critical to the cause.

How Many Members Are Needed? There is no single answer to this question. The target should be enough members to be representative of the franchise system. In most systems, at least 50 members would be a meaningful measure of success.

What Should the Association Charge for Dues? The amount of dues needed will depend on your projections for membership as a factor of what budgeted activities you envision. Some organizations actually charge no dues, but they have established a pipeline to preferred providers who are willing to pay supplier dues or rebates that are sufficient to fund the association. Some of the costs to consider include whether or not you will employ contracted services for association management or rely solely on volunteers. While volunteers may sound like a low-cost solution, it has been our experience that all volunteer associations eventually crumble.

The Steps to Form an Association. Once the groundwork has been laid, there are a series of steps that can lead to the successful formation of the association:

1. Steering Committee – the initial committee essentially fulfills the management role of a startup association until such time as there are sufficient members and resources to establish a formal entity and elect a board of directors.
2. Development of the Association Mission – At an early time, the founding members should build a mission and goal statement, and identify the issues, goals and objectives of the association, as well as a defined strategy and adopted projects aimed at accomplishing your mission. The AAFD recommends the development of a positive mission that will be easily embraced by the rank and file franchisees, and ultimately by your franchisor. At the end of the day, your goal is likely to have your association recognized and accepted as a valuable asset of a flourishing franchise system and brand.
3. Membership recruiting – Effective member recruiting requires a peer-to-peer effort. We have seen many instances of owners trying to employ third party telemarketers to call prospective members only to find that such an effort ultimately fails dismally. The reason is quite simple; owners do not want to talk with outsiders about their personal business matters, but they are willing to listen to their peers. To do effective recruiting, the Steering Committee should establish a protocol for an ever-expanding “call tree” in order to solicit new members as additional recruiters.
4. Legal Organization – once you have an indication that recruiting efforts will be successful, you should consider a legal structure that can both protect the officers and directors as well as establish the by-laws and governing instruments to use. One important consideration will be the taxability of your entity. Many associations are non-profit and mistakenly believe that that also means non-taxable. Generally this is not the case, as the IRS Tax Code only provides tax free status to associations that are ‘generic trade associations,’ i.e., open to all comers. A brand specific association obviously does not meet those criteria.
5. Nominating Committee – while the Steering Committee may have served as de facto officers, the fact is that they did not go through an elective process. That should be corrected by an elective process to both nominate and elect your board and officers.
6. Installation of officers and ongoing operations. Once elected and installed, the new officers should derive a proposed scope of operations. Some of the items to consider include:

a. Number of Board Meetings to hold – both telephonic and in person

b. Committees to be established, including as appropriate:

i. Membership

ii. Purchasing

iii. Education

iv. Advertising

c. Member meetings

d. Communications

i. Newsletters – electronic vs. hard copy

ii. Google group or other internet service

iii. Member surveys are a great way to develop appreciation of your goals and the importance of franchisee unity.

e. Reporting – do not overlook the need to file necessary documents with the secretary of state and tax authorities as appropriate.

The above list is not intended to be all inclusive, but rather to provide a guideline of possibilities to consider.

The Role of the AAFD. While the steps needed to organize an association may appear to be daunting, the AAFD is in a terrific position to save franchisees both time and money. We have been in the association “birthing” business for over 15 years and the AAFD prides itself in serving as a catalyst to trigger the launch, as a cost effective vehicle to serve as the entity, and an impressive array of tools to support the success of the association.

Tools AAFD provides:

a. As an internal chapter of the AAFD, not only avoid the unnecessary steps of incurring legal expenses to form a corporation, but also gain tax-exempt status.

b. Samples of By-Laws and Organizing Minutes that can serve as a template that can be tailored to the needs of each franchisee association.

c. Recruiting scripts and free conference calling bridges that will assist in the recruiting efforts

d. Chapter administration services including a membership database and mailing and collecting of monies for both new and renewing members.

e. AAFD can provide a “carve out” of monies collected to be spent as discretionary funds by the chapters.

f. Supplier programs to provide much of the function that a Purchasing Committee might consider. AAFD suppliers are more generic in nature and that would allow a chapter purchasing committee to focus more on brand specific needs.

All of the above services are provided as part of your AAFD dues for all AAFD chapters (regardless of size or maturity). The AAFD offers many other services to support successful associations.

The AAFD strongly believes that there should be an owners’ association in each franchise system. Whether you do it though the AAFD or independently, we hope that you will consider forming such an association.

Visit the AAFD Website for more information.