September 2013 Archives

Give your franchise owners the best tools to run their business is paramount to their success which, in turn, translates into yours.

While out-of-the-box software solutions are abundant in this day of modern technology, customized software solutions, tailored to your business model and strategy, will give you optimal results.

Consider this - software needed to run a successful sandwich shop is very different than a solution needed to manage a pest control franchise.

The sandwich shop will rely heavily on the system to manage their inventory and employee scheduling, while the software for the pest control business may need to focus on managing the customer's information, schedule and communication needs.

These two Franchises will require very different and very customized solutions to manage items such as their inventory, customers, employees, ROI.

Imagine how customizing your software can help you more efficiently manage your business. While there are many different ways to customize your software solution, it is important to remember that at its core, there are three very basic requirements that any solid software solution for a Franchise will provide:

  • Consistency - it is important that your Franchise Owners are operating as consistently as possible and that you as a franchisor have access to the data and reporting needed to ensure that their performance is meeting your expectations.
  • Control - while Franchise Owners are responsible for their own destiny, they could potentially have a negative impact on yours if you don't control their business practices to conform to your business model.
  • Communication - what makes a successful Franchise? Successful Franchisees. And how do you encourage growth and success in your Franchisees? Communications are key and one of the best ways to communicate is via the very software the owners use day-to-day.

Many people contact me who are interested in buying an existing franchised business, for example, an existing fast food restaurant, massage or weight loss franchised business.

In advising them, I tell them that there are two critical aspects to evaluating this opportunity.

  • One aspect is evaluating the existing business in the same way you would any existing business opportunity.
  • The second, equally important evaluation is to determine if the franchise is good.

1. Evaluate the Existing Business Location

In evaluating any acquisition of a business, a prospective buyer needs to perform careful due diligence.

The due diligence (or homework) should include a careful evaluation by an experienced business accountant of the financials of the business for the past few years.

In additon, the legal due diligence should include evaluating any employee contracts and benefits, existing leases (both real estate and equipment) and other contracts the business may have that are on-going liabilities or obligations.

A determination of how an on-going obligation, that has been pre-paid, should be handled, is important.

2. Evaluate the Existing Franchise & Support

In addition to the evaluation of the existing business, when that business is a part of a franchise, it is important to evaluate the franchise.

This evaluation should include these four factors:

  1. Investigation by the prospective buyer of the support and training the franchisor provides;
  2. How other existing franchisees feel about the support and training they received and continue to receive;
  3. Evaluation of the franchise agreement that the buyer will be required to enter, and;
  4. A complete understanding of the obligations that the buyer will have to the franchisor and the expectations the buyer should have of the franchisor.

Many prospective buyers of franchised businesses make the mistake of thinking that the evaluation of the existing business is all that matters.

This can be a costly error.

(This post does not create an attorney-client privilege and is not intended to provide legal advice for any particular situation.)

Prospective franchisees think reading an franchise disclosure document, FDD, is hard.

They are wrong - not reading and losing your life savings is hard.

This article is about how to read and understand Item 5 disclosures - what happens when you pay your franchise fee. What you get for paying the initial fee.

Before I tell you why I think that the Taco John's franchise disclosure of Item 5 is so admirable, I want to tell a very different story.

Your Lawyer's Retainer

(The following story is a parody, no lawyers were harmed in its production.)

You walk into your business lawyer's office. You want him to review your FDD. He has a new associate, who beckons you forth.

You move forward, and notice another new wrinkle - a VISA machine smack on top of the associate's desk. The associate apologetically explains that due to the economy all clients are on a pay before you go plan.

Fortunately, there is now a fixed fee schedule and you are relieved to see that the associate only charges $800 for a review of the FDD.

You hand over your FDD, sign the standard retainer agreement, and shell out $800 on your VISA debit card.

The associate confirms the transaction, ruffles through the FDD, and smiles at you expectantly.

This isn't going well, you think. So you venture, "Well what did you think?"

"About what?"

"The FDD", you persist. "The Franchise Contract."

"Oh that. "It is the standard franchise agreement." He then drones on something about France, the Singer Sewing Machine and a "Lanham Act".

You really aren't interested and wish the associate would begin earning his retainer.

Abruptly, the monologue ends, but now the associate seems to have dozed off.

You want to shake him or worse. You want to pound the desk with your shoe.

The associate snaps to attention, looks around, fixates upon the classic timepiece on his desk and blurts: "Times up, Next. Agreement is terminated. And the Fee is forfeit."

"But, you haven't done anything!", you protest.

"Fulfilled the terms of the contract as per the standard retainer clause, paragraph 42.", says the associate as you are ushered out the door.

Paragraph 42, you wonder? So you flip open the retainer agreement -you just signed without reading.

You get out your magnifying glass and read:

Paragraph 42:

"You will pay us $800.00 for a FDD agreement review, the Retainer Contract.

Your contract is likely to contain several contingencies that will allow you, your attorney to terminate your Retainer Contract if such contingencies are not met.

The types of contingencies that may be included in Retainer contract are, by example:

· obtaining appropriate approval;

· obtaining adequate financing;

· receiving 3 acceptable bids for your Retainer contract, and:

· obtaining required municipal licenses.

If a contingency is not met as described above and your Retainer Contract is terminated, we will not refund any of the payments you have already made to us.

And, we reserve the right to determine in our sole and unreasonable discretion whether the contingency is met or not.

These payments will have been fully earned by the Attorney as a result of our lost and deferred opportunity costs, corporate expenses, and all efforts performed on your behalf before the termination of your Retainer Agreement.

We will, however, assist you in your efforts to locate another attorney and fully support your efforts to acquire another Franchise Disclosure Document review."

So, you are now out $800 because you failed to understand the significance of a deeply convoluted legal clause buried deep within your retainer agreement.

Even if it was marked in red, bold print, and had the notation:

"Here is a VERY DANGERGOUS CLAUSE", its significance would not have been apparent until you were "terminated".

(The above story is a parody, no lawyers were harmed in its production. Really they weren't.)

Could things get any worse for you?

No, things are going to get better for you because your FDD is written with admirable clarity.

Your FDD might be written as well as the Taco John's 2012 FDD:

"If you terminate the Franchise Agreement any time before all persons required to complete initial training have been certified by us, or if we terminate the Franchise Agreement because of your (or your owner's or manager's) failure to meet our initial training requirements (see Items 6, 11 and 17 of this Disclosure Document), we will refund the Initial Franchise Fee less the actual expenses we incur due to your acquisition of the Franchise, but we will not retain more than 30% of the Initial Franchise Fee to cover our expenses."

This is terrifically clear.

If you want to bail out after signing the agreement, it will cost you 30% of your franchisee fee at most.

If they want you to bail out, it will cost them 70% of what what you have paid them.

There are no tricks to this clause, and the attorney who drafted it should be congratulated.

So should the franchisor who has explained with clarity and transperancy the risks of not completing the intial training. More importantly, there are no gotcha's in this clause - no unforeseen conditional contingencies which may rob you of your initial franchisee fee.

Review the item 5 disclosure. It should read more like Taco John's item 5, and not at all like your lawyer's paragraph 42.

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To best protect its interests, an employer who suspects that one of its employees is stealing should immediately consult the company's attorney for advice.

Investigating Employee Theft

Typically, the attorney will advise the employer to take steps that include the following:

1. Commence the Investigation Promptly: A small business owner should initiate the investigation of a purported theft by an employee immediately. This prevents the employer from running afoul of criminal and civil statutes of limitation.

2. Place a Third-party Employee in Charge of the Investigation: A management employee other than the supervisor who first observed or reported the theft should perform the investigation. This avoids the taint of bias that a more involved player would bring to the investigation. In addition, the employer should interview the accused in the presence of a witness.

3. Maintain Strict Confidentiality: Maintaining strict confidentiality throughout the investigation is essential. Failure to act discretely in handling an employee theft can subject the company to defamation claims by the accused employee.

4. Document the Investigation: It is also important to document all interviews when investigating the claimed theft. The employer should gather evidence that sufficiently assures that the theft from the company occurred and was committed by the employee. This evidence will be useful in several arenas: in furthering a criminal or civil prosecution of the accused, in collecting from an insurance company if the company is insured against employee theft, and in defending against a possible wrongful discharge action against the employer.

5. Notify the Bonding Company or Insurance Company: If the company maintains a fiduciary bond or employee dishonesty insurance, then the company must notify the bonding company or insurance company immediately upon finding out about the loss.

6. Notify the Authorities: The employer may wish to file criminal charges against the former employee. If the company files a criminal complaint, an investigation by the police or other governmental agents would occur.

If the prosecutor decides to pursue the case, the employer can seek restitution through a criminal proceeding without having to file a civil action.

Regardless of whether a criminal action is maintained, the employer should consider filing a civil action against the former employee to recover the value of the stolen items.

Preventing Employee Theft

To proactively help a small business owner control employee theft, an attorney will counsel the small business owner as to what is permissible under the law. Several deterrent steps can be taken, such as the following:

1. Supervision: The employer should have in place regularly scheduled reviews, reporting processes, and other forms of checks and balances which enhance the likeliness of discovering any breaches of honesty. A small business owner is wise not to concentrate supervisory responsibilities in any one employee, but rather to create a structure designed to assure a business ethic of cooperative and appropriate teamwork.

2. Audits: In the fiscal realm in particular, it is prudent for an employer to have audits and other financial oversight procedures in place. Both external and internal financial controls should be a routine part of the company's management.

3. Video Surveillance: The small business owner may consider other, more creative ways of supervising the work area, such as maintaining video surveillance of its employees in the workplace. However, the video surveillance cannot include sound, as surveillance using sound recording has been found to violate an individual's right to privacy. Video surveillance must be limited to areas which are not inherently private in nature, such as a dressing room or a bathroom.

4.  E-mail Access: Additionally, employers should have an employment policy allowing them free access to all employee e-mails. The attorney will advise the business owner as to how to protect its interests without infringing on the constitutional rights of its employees.

After survey after survey, we found these are the top five word phrases which kill sales.

They are conversation diverters. Just as ALWAYS and NEVER are conversation diverters, these five killer word phrases will make your customers and your potential customers veer away from the real point of your conversation. 

So best we eliminate them from our routine and vocabulary. It's not easy to do. If it were easy to do, everyone would be doing it...and we know everyone isn't doing it. 

Remove these 5 Killer word phrases from your sales.

"It's not our policy."- Ouch! Okay, okay, most every company has policies and it's something we need to deal with on a daily basis I'm sure. What we realized was it's not necessarily the policy that's frustrating, it's blurting out first and foremost, "It's not our policy" or in some cases it's "their" policy.

The policy needs to be rephrased so that it starts off in a more positive way. We like to say "rejecting gently." And rephrasing policies are a good way to explain what's not gonna happen. 

Next time you find yourself saying, "That's not our (their) policy." Stop. Regroup and reword. Buffer it with, "Let me see what we can do. Normally the policy of that company doesn't allow last minute changes. (The request MUST be stated so the customer hears that you're going to go to bat for them.) However, we can sure tackle this." 

What happens here is sometimes when we go back on behalf of the client, it works. And then sometimes it doesn't. But at least we double checked. And we didn't just slough it off with, "I'm sorry. It's not our/their policy." 

2. "Our computers are so slow." - Big excuse. Everyone's computer runs slow every once in a while. When you complain about your computer it's as though, you're complaining about your company. That's how it's perceived. And perception is reality. Take the time to say, "This might take a bit longer than I'd like it to. Tell me about..." and then ask a benign question that will take time and let the customer talk. 

While most people do understand slow computers, they don't like it. It kills the conversation. 

3. "Calm Down." - Oh man does that make the hair on the back of their neck stand up. In any movie or TV show I've watched lately when someone is told to "calm down," the next words are, "Don't you tell me to calm down." 

Bill O'Reilly said that to a guest the other night. And the guest slammed back at him "don't you tell me to calm down."

There are times when the client may need to vent. Your job is to listen and come in at the appropriate time with sympathetic and empathetic wording. Instructions on how to handle something is one of the last things they need. Get rid of "calm down." 

4. "No Problem." - And they're thinking, "When was I a problem?" Believe we can thank the 'islands' for this one. When we take a cruise and ask for anything, what's the first thing the waiter says? Right, "no problem." 

Well on the cruise it may be ok; however, back home it should be "you're welcome," "my pleasure," "happy to help," and a host of other ways to let the customer know you're glad to do that.

No problem appears to be a big problem with your customers. Lose it. It kills the conversation. 

5. "Yes, but..." - Hmm what's wrong with that? We all say it. Well, what's wrong with that is the minute we say "yes, but," the client knows something negative is coming. 

If you have ever said, "I love you so much, but..." There's a condition coming, isn't there? Here's one way to change that: "Yes, we can do that. There is, however, a $50 additional fee." Doesn't that sound better than, "Yes but..."? 

Most people have phrases and sayings they don't like or that aggravate them. Keep a list of your killer words (along with ours) and avoid them.

# # #

Reprinted with permission of Telephone Doctor Customer Service Training. Nancy Friedman is a featured speaker at franchise, association & corporate meetings. She has appeared on OPRAH, Today Show, CNN, FOX News, Good Morning America, CBS This Morning & many others. For more information, call 314-291-1012 or visit www.nancyfriedman.com.

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This page is an archive of entries from September 2013 listed from newest to oldest.

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