Truth in Franchising Act of 2007

Truth in Franchising.  Where is it?  Someone please tell me.

The US Government introduced the "Truth in Lending Act" in 1968 as a way to inform the consumer of certain conditions pertaining to the funds be borrowed.  It did not dictate the conditions or the rates of the loan, it only "disclosed" the actual terms and costs of the loan to the consumer.

Where is the "Truth in Franchising Act"?  An act that does not regulate the Franchise agreements or dictate the terms by which it is constituted, but rather, an act that simply discloses the full context in which the franchise agreement is executed.

The TFA should provide full disclosure of franchisor pre-arranged agreements and conditions that bind the franchisee to an ongoing cost.  Any time a franchisee is "required" to pay a non-competitive price for a products or services - those goods or services "shall" (for you attorney-types out there) be listed on the "Truth in Franchising" disclosure document.

Truth in Franchising Document:

Product Costs.  The amount that the supplier charges the non-franchisee compared to the amount charged to the franchisee should be fully disclosed.

Shipping Charges.  The amount that the supplier charges for shipping products, supplies or equipment compared to standard shipping rates should be fully disclosed.

Mandatory services.  Equipment leases, Maintenance, Accounting services, Satellite Programming, Support services.

Advertising Fee Accounting.   Most franchises collect advertising fees with the commitment to provide system-wide or national advertising.  These fees should be disclosed in the amount collected, amount distributed back to local advertising and the distribution breakdowns by usage and geographic locations.

Services ownership.  Ownership of any mandated service provider by any franchisor employees or executives should be fully disclosed.

These are nothing more than "proper" partnership disclosures. Period.

Disclosure of the contractual agreements that mandate the franchisee pay prices that are different than public prices.  Disclosure of mandated services from a single source provider as dictated by the franchisor.  Disclosure in what amount the franchisee is being "up-charged" for goods and services. Disclosure of contracts going to self-interest service providers.  Logic would dictate that since goods and services are being purchased in volume that a price less then retail would be justified, but in the "surreal world of franchising" the benefits of volume go to the pockets of the franchisor and profits of the distributor while the franchisee is left paying the bills.  It is this reluctance to disclose proper business dealings that enhances the perception that "Franchise Fraud" is alive and thriving.

The TIF document should not be viewed as positive or negative for the franchisor or the franchisee, it is simply data and information.  The data then can be analyzed for amounts and usage, the data will then will speak for itself.  If fees and practices are excessive and mismanaged - then they will be viewed as negative and franchisees have the right to call for reform.  If they are reasonable and are being used to build the distribution channels and stabilize the system - then they will be viewed as positive and the franchisees should pipe down and work the system.   But without proper disclosure, the truth is never known and one is left to wonder if the $28.50 shipping up-charge is justified.

In other industries, paying an overhead for the protection of the "system" is…uh, uh, racketeering,  but for some reason, since franchising is still in it's 30-year infancy it does not get attention that it requires.

In the long run, a TFA providing full disclosure will serve to stabilize the Franchise relationships which will in turn build healthy and profitable franchise systems.  However, the sad reality is that franchisors don't seem to grasp the idea that operating in the light breeds confidence and respect, while operating in the dark festers the growth of suspicion and distrust.

Here's to a better world….

-jm