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How To Master Franchise / Certified Franchise Exporter

I was just wondering after seeing so many blunders, so many failures, so many complaints from overseas investors......

Has there been a course, a seminar, a qualification, or something that was required for franchisor to get a certification of qualification to export abroad?

I mean in order to franchise in the USA, there are some requirements to do it under the IFA flag.  In oder to master license the same concept in a completely different culture and market, there is no such list of requirements from what i can see that would would need to be met, hard to believe?

Really it is not just that foreign partners should do their due diligence that their US Head Office has a clue where their countries are, but I wonder how much sense it makes to start exporting a concept into foreign lands at a time where the USA market is not even developed above 50% of capacity, no one has yet registered or used a passport to travel in the whole organization, and the only currency traded in the hands of the owners came from the US government or monopoly game organization. 

I believe it is the responsibility of an organization like the IFA to start requiring not only courses to attend, but actual exams to pass, and criteria checklist to fulfill in order to be able to export concepts abroad. 

1. It saves relatively small operators from making costly mistakes.

2. It allows franchisors to make their early mistakes at home first, learn and increase their businesses chances for success.

3. With a longer learning curve at home, the value proposition of the business and master license will increase and the long term rewards will be higher for the master and the franchisor.

4. The success rate will certainly increase as criteria for successful operation or conditions are met.

5. It saves the reputation of american franchisors who want to do it right and for the right reasons.

6. With better conditions and relationships with partners abroad, US franchisors can start learning from the markets abroad as well and improve and even innovate new things to bring to market at home. 

Please feel free to add to the list, as there are hundreds of reasons why a certification makes sense.

14 Forum Remarks

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LEGAL ISSUES OF FRANCHISING

WHAT ARE THE LEGAL ISSUES OF FRANCHISING? 

A good relationship between the franchisor and franchisee is critical for the success of both parties. Since franchising establishes a business relationship for years, the foundation must be carefully built by having a clear understanding of the franchise program. Unfortunately, understanding the legal language of franchising can be daunting. The advice of an experienced franchise attorney should be sought to help a prospective franchisee understand the legal issues and to protect them from making costly mistakes. Franchising is governed by federal and state laws that require franchisors to provide prospective franchisees with information that describes the franchisor-franchisee relationship. The two main franchising legal documents are: 

  • THE DISCLOSURE DOCUMENT (also known as the FDD) The purpose of the FDD is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision. In addition to the disclosure part of the document, the FDD includes the actual franchise agreement as well as other agreements the franchisee will be required to sign, along with the franchisor’s financial statements.  The FDD is designed to give you some of the information you need in order to make an informed decision about investing in a particular franchise.  By law, a franchisor cannot sell a franchise until the franchisor has presented the prospective franchisee with a Disclosure Document. In fact, 14 states require franchisors to register their FDDs with the state or to notify them that they will offer franchises before they begin to conduct any franchising activity in the state.    The FDD includes information about:  

                               • the franchisor               

                               • the company’s key staff              

                               • management’s experience in franchise management              

                               • franchisor’s bankruptcy and litigation history              

                               • initial and ongoing fees involved in opening and running the franchise              

                               • required investment and purchases                  

                                • territory rights                      

                                • responsibilities of the franchisor and franchisee                     

                                • other franchisees in the system with contact information

Receipt of the FDD is governed by the “14-day rule.” This is a cooling-off period in which franchisors must give prospective franchisees 14 days to think about their decision before they are allowed to sign the franchise agreement. 

  • THE FRANCHISE AGREEMENT The franchise agreement is more specific than the FDD about the terms of the relationship between the franchisor and franchisee.      The franchise agreement includes information about:  

                                  • the franchise system, such as use of trademarks and products         

                                  • territory        

                                  • rights and obligations of the parties: standards, procedures      

                                 • term (duration) of the franchise

                                 • payments made by the franchisee to the franchisor                    

                                 • termination and/or the right to transfer the franchise

                                 • Training, assistance, and advertising

The franchise agreement is the legal, written document that governs the relationship and specifies the terms of the franchise purchase. A prospective franchisee should closely review the franchise agreement and consult with a professional advisor, like an attorney or an accountant, before making a final decision.  The Franchise Maker

Jim Coen's picture

International Franchising is a field onto itself

 I I don't have much personal experience with international franchising other than to Canada.

The certification program you propose has the potenial to give franchisors greater access to international markets.

The International Franchise Association (IFA) is not really an International association, it is mostly a US Franchise Association. Many countries has their own franchise association.

The World Franchise Council lists over 35 countries that are member Franchise Associations.

The IFA is a member and listed as the US Franchise Association.

 Jim Coen

Jim@franchiseperfection.com
Franchise Perfection, Lets Talk Franchising Blog

Paul Steinberg's picture

Purpose & philosophy of IFA

The IFA was born as the industry trade association to lobby in opposition to legislation restricting franchisors. It has always followed an extreme laissez-faire position, except when it wants taxpayers to fund the US Commerce Dept's efforts to promote American franchisors overseas.

The only real requirement to operate "under the IFA flag" is to pay the IFA some money. As opposed to the AAFD's "fair franchising" imprimatur, which does require some screening and which will not be given simply upon payment of money, the IFA is not picky.

The IFA has been quite successful in making people think that it is a self-regulatory organization (SRO) along the lines of the old NASD or NYSE organizations. But this has never been the case, and as we have seen with the NASD, it is difficult to be an effective SRO even with the best of intentions.

The IFA will not mandate any program such as you propose-- not because it would have any effect on franchisors, but because the IFA is philosophically opposed to limiting the entry of new franchisors and the expansion (domestically or internationally) of existing franchisors.

"To operate under the flag, pay the fee"

Hmmm, if that was taking place in some nation in South America, one would  say that is a pay off...... Membership fees - fair enough, but it ultimately comes down to how it is used in the marketplace. 

Really, when you listen to the discussions some franchisors hold with their potential franchisees, one could think they had to go through some incredibly difficult and painful process of study and examination, while their company (upon incredible audits and evaluations) gets accepted to fly the flag.  None of that is the case.

In many ways it is an ethical question.  Most know that the unaware franchise candidates have in most cases not the skill, experience, resources or knowledge to do the evaluation themselves.  They do in most instances trust the IFA and the franchisor flying the IFA flag, at the time they put their life savings on the line. 

 

 

Is IFA the International Organization or Not?

So, is it international or is it not international in terms of its reach and control?

If it is not and it has not some control over the others, I wonder if the other franchise associations abroad enjoying the image of being under the IFA umbrella?

Is there some link on the IFA website where one can read up on how it is all organized and structured?

 

"Philosophically opposed"

So if IFA is for the better of the whole sector and its members, to ensure a certain quality and standard is maintained, why would IFA then be opposed to limit the entry of new franchisors of whom it does not know much at all and does not require any kinda of audit.

In reality that is like saying IFA Membership has no meaning to the general public other than the franchisor has paid a bill for another season.

This free entry pass for anyone with an open wallet to pay the fee appears to be a distaster in terms of image for IFA and all those who hold themselves to the higher standards any franchisor should operate.

Besides, if IFA was to hold new franchisors accountable to follow certain rules and work in a certain fashion, it would actually failsafe many of them from costly mistakes.  Therefore, IFA would establish almost something like a system of proven practices for franchisors (not new to any franchisor).   How could one oppose reading that manual?

Of course, many enterpreneurs would be oposed to following others directions, but in that exactly is the danger onto themselves and onto others.  Bankers and financial institutions follow industry rules because they have to hold themselves to higher standards, so why can't the franchisors....after all both take money from people and both make money (hopefully more) for the people. 

franpro's picture

The new IFA

The IFA has changed a lot in the past 5-6 years.
An open wallet buys almost real cred.
For  instance;
if you go the the IFA website, and want to learn how to select a franchise, you will find an outfit called Franchoice as the "expert", when it comes to selecting a franchise.
Franchoice paid a ton of money, and still do to the IFA coffers for that distinction.
Are they better than the group Frannet, who I am with?
No. No. and No. But they pay to say they are the experts.
They also pay Entrepreneur Magazine for the same distinction.
Big diff.
EM is a publication that is for profit, and sells ads for a profit.
The IFA is supposedly a non-profit assoc.
The IFA has become a franchise unto itself, collecting fees up front, and selling marketing programs.
mmmmmmmmmmmmm
Maybe some regulators should sniff around a tad.
And by the way, what if a Franchoice salesperson sells a franchise, the franchisee fails and sues Franchoice AND the IFA for bringing Franchoice on as a  "trusted" resource?
Interesting, and perplexing questions.
Franpro

Les Stewart's picture

IFA: Innovations are Exported

Franchising used to be a simple affair a few decades ago. A few pages, a hand shake and off they went.

Things have become much, much more complex and for good reason.

The American Bar Association Forum on Franchising is, indirectly, an incubator for franchisor opportunism.  New ways of using laws are sold to the franchisor community by the franchise bar. New ways of defeating franchisee claims are developed and sold.

These innovations are exported internationally via attorney cross memberships and other national franchisor associations, such as the Canadian Franchise Association, CFA. The international movement, UNIDROIT, pushes for uniform civil laws across jurisdictions.

One Industry::One Law::One Level of Investor Protection
It should not be a surprise that the "uniform franchise laws" are a very low water mark. The latest in North America, the province of Prince Edward Island, is a dramatic example.

Susan Kezios was kind enough to be an expert witness in Toronto, Canada in March 2000 and she testified to the above. She also said that franchisors bought 99% of all of the franchise bars services.

The IFA created and protects their dominance. The ABA Forum on Franchising are the high priests to that court.

Notwithstanding the best efforts of the 1% of the bar [franchisee counsel], investors looking for a legal solution...

...are walking into a (second) very well laid out trap.

Les Stewart, MBA
Ontario, Canada

Les Stewart's picture

The IFA is a Mask

Only Three things matter:

  1. cash flow
  2. cash flow, and
  3. cash flow.

Franchisor controlled associations perform an extremely useful service to the less visible, but equally important industry shareholders. They confuse, delay, divert and diffuse an accurate understanding of the true investing risk.

Their business is investment disinformation.

The real profiteers make more money [net IFA costs] in the shadows than if they were involved directly.

Hint to the Role of Deception

Ever notice why all the national associations are named so inelegantly? They intentionally want to give the impression that they represent both sides when, in fact, they do not.

When you look at the industry, as I have, it falls out like this:

  1. franchisor association (1),
  2. financial institutions (franchisee debt & service providers),
  3. franchise bar (intellectual support & apologists),
  4. suppliers (achieve above-market returns through tied buying),
  5. sales agents (happy, happy face; outright fraud), and
  6. product franchisors (auto, oil & grocery systems).

And opposing these 6 parties' aligned interests, an individual franchisee. [Boy, I'm trying to be happy about this.]

Moral of the Story

The IFA does as it is told. They're the patsy. the front man, the false target [policy decoy]. The real power lies elsewhere. Everybody knows.

If you read any of their testimony, over the years: the Foghorn Leghorn executives don't have the mental horsepower to run a lemon aid stand.

They just keep mouthing the same hollow words. Platitudes that a high school student knows are false. [Look for the high-priced talent talking: now there's the babysitter.]

Franchisee Associations
What's surprisingly, it's a situation that the franchisee community leaders seem content to accept.

Why they continue to use trench warfare when the internet is available, is a good question. A very good question.

Les Stewart, MBA
Ontario, Canada

Paul Steinberg's picture

ABA Forum on Franchising & IFA Legal Symposium

Les:

I am no longer a member of the ABA (for reasons not relevant here) and even before that I was taken to the woodshed for my postings on the Forum on Franchising ListServ (the postings are available on the ListServ archives, which can be googled).

So I am hardly a fan of the ABA, and have rather publicly challenged the FoF to be more tolerant of franchisee-side views.

That said, I think your view of the FoF is unwarranted. The FoF has always had people like Jack Dunham (Subway's outside counsel) and Dennis Wieczoreck (of DLA--the outside counsel to Quizno's and the IFA) who BECAUSE of their franchisor-side bias have always striven to seek out the views of franchisee-side attorneys to present at the annual meeting and write for the publications. Jack Dunham went so far as to seek out an academic to rebut a piece Dunham was putting in the Franchise Lawyer and encouraged her to pick his piece apart and challenge him on every point.

The IFA Legal Symposium is different. I attended one year and was aghast at how nasty and anti-franchisee the presentations were-- even some of the franchisor attorneys I spoke to were bothered by the tenor.

I agree with you that the IFA Legal Symposia are an eye-opener for those that do not understand the condescending and unrelenting hostility of the International Franchise Association to the "partner" franchisees in its midst.

I spent 2 days at one, and came away with an abiding dislike for those awful people, who seem to revel in hurting franchisees rather than viewing a high litigation rate or high turnover rate as signs of matters which may be (at least partially) the fault of the franchisor.

But the ABA Forum on Franchising does try to present a balanced perspective, and if you send in an article from the franchisee perspective, they will likely print it in a heartbeat precisely because the FoF leadership is very concerned with maintaining a balanced and professional discourse (albeit not on their ListServ).

I welcome free exchange of ideas, and it is in our interest as attorneys, academics, and franchise professionals to welcome discourse. I do agree that people (including franchisors) are not angels, and that is why we have laws to limit the ability of powerful actors to work their will on the less-powerful.

--Paul Steinberg, pwsteinberg@msn.com

Les Stewart's picture

Public Law Priests

Paul,

As history teaches, every regime needs support from their champions, intelligensia, secret police and samaria. Since accurate observation of reality (ie. the truth) is not on their side, all they have left is deception, confusion and delay.

It's not if. It's when. That's why they are so secretive.

Franchise Bar
Your points are well taken and I am sure they are accurate. However, you cite the minority (1 or 2) in order to defend the majority (hundreds).

And there is always merit in maintaining a well-managed veneer of neutrality. Just how deep that commitment to social justice runs, well....

On balance, Kill them all: God will recognize his own. [in an allegorical sense, only]

Bastard International Offspring
There is a tangible continuous, "no clause too punitive", "no human right too sacred to strip away" mentality that has taken hold in franchising. I have seen the automatic parroting of these near-fascist attitudes up close.

Indeed, I suspect the Canadian franchise bar tries "twice as hard" as a way of compensating for their acknowledged branch plant mentality and self-loathing.

Franchise Bar Sins
I believe the entire franchise bar has disqualified themselves as credible future contributors and I can live with being 1 or 2% wrong in that conclusion because of their lack of remorse.

Capital Punishment

It is not good business, public policy or economic planning to have a series of random, predictable, calculated, and pre-meditated monetary lynchings. The Romans did not invent it but merely perfected its execution: crucifixion.

Capital is inefficiently allocated and we all suffer because of it.

Let's try private law for a change. Or at least give it a chance to compete against these "gentlemen". I know who I'd rather trust.

Les Stewart, MBA
Ontario, Canada

michael webster's picture

Collective Action

 

Les;

The franchisee community fails themselves precisely because it is not an organized community.

A franchisee feels more comfortable railing against "corporate" as opposed to joining their trade association and coming up with creative solutions.

While the franchisor bar continues to write clever contracts, most of these contracts are the equivalent of having the atomic bomb.  They are virtually useless as economic re-orderings, except in the cases in which there is no sharing of the surplus.

It is up to franchisee lawyers, the current franchisee trade associations, and other associations like the AAFD and AFA to trumpet the value of collective action - which you think wouldn't be so hard in a franchise system.

 

 

Michael Webster PhD LLB

Psychology of Compliance and Due Diligence Law

Les Stewart's picture

AFA & AAFD: Information Technology

I believe the AFA & AAFD should create a project team to evaluate, support and sanction the creation of a franchise industry reputation system.

I believe franchisees should contribute to fund that project.

Michael,

You're entirely, unequivocally, correct.

Hair on Fire Franchisee
You and I have dealt with many of these "in crisis" investors. Their capabilities to make rational decisions is minimal.

Small Groups within Trademark Systems
The culture of each system is distinct. However, there are always informal leaders and followers. Maybe an independent franchisee system is not possible. Why not start scanning, contributing and looking beyond your own parochial mark?

Independent Franchisee Associations, IFA
Supporting franchisee rights even when you're doing ok is the most selfish thing you can do. Things change. Franchisor managements change. It's only logical and self-interest to support, now, what you (or your kids) will (not might) need in the future.

National Franchisee Associations (AFA & AAFD)

Without gas in the tank, nothing happens. These folks are trying to do a job with very, very little support from direct franchise investors.

You get the muscle you're willing to pay for in this life. Don't go blaming some mythical other (franchisor, association, politicians, attorneys, etc.) when you haven't cut a check recently to prevent these abuses.

Private [Industry] Law
We need to establish an alternative to the legal system as have many other industries. The AAFD has done fantastic work on standards and the AFA is also very strong legislatively.

HOWEVER: the public law will only follow once private law is working.

Private law will be started through a reputation system that remembers.

A Start
I'm willing to donate my work accumulating franchisee stories to the effort but I just want to make sure that they are not buried by those that prefer not to have that information made public.

Let's start a thread, maybe, Mr. Blue Mau Mau? [Reputation Systems]

Les Stewart, MBA
FranchiseFool.com

Collective Action

Collective Action in the Franchisee Community is defined as Associations who have no legal right of contract to address their concerns with the franchisor and to be heard.   These asssociation members may air their grievances and vote but the franchisors don't have to count the votes.  The franchisor-franchisee contract is not a democratic relationship.  The franchisor,  with the help of the law, intends to deal with its franchisees on an individual basis to deny them the power of collective action.       

Franchisees are generally so busy trying to survive their days that  they don't have the time or the money  to be activists.  If they are treading water and staying alive,  they hesitate to incur the anger of their franchisor who retaliates against dissent in the ranks. Survival is the name of the game  -----this is not a hobby ----this is food on the table and gas in  the car, and shoes.          

Those franchisees who don't survive are silenced by their circumstances,  their deep grief and despair at losing their jobs their savings, and their faith in the system. They move out and on and don't want to think about the investment from hell.  They lose confidence and wonder how and why  they have contributed to their own pain. They feel shamed by their failure and their pride silences them.  They leave the scene of the accident and the injury and their financial death and never return to that place again.  

If these people would rise from the franchise graveyard and tell their stories and contribute  to form a "Reputation Registry"  as Les Stewart advocates,  the venal franchisors would be exposed.   If more of the bruised and injured would use The Rip Off site to expose abuses,  there would perhaps be more policing of the industry.  But,  their fellow franchisees might argue that these franchisees are injuring their "own asset" by publicly airing their grievances. (as has been the case on Blue Mau Mau)  

The reality and brutal truth  appears to be that those franchisees who have the means to survive and protest through the legal system,  and who win some kind of justice in a settlement are silenced also.   

So much for collective action.             

 

 

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