IFA Members come together for IFA’s Second Annual California Franchising Day at the Sacramento Capitol

On March 4, IFA brought together over 25 member franchisors and franchisees for our second annual Franchising Day at the California State Capitol in Sacramento. Among the brands represented were, California Closets, CKE Restaurants, The Entrepreneur Authority, Franchise Services Inc., FranNet, Glass Doctor, Home Instead Senior Care, Interim HealthCare, IHOP, McDonald’s, Mr. Rooter, Plumbing Md, ARCO ampm, Instant Imprints, The UPS Store, Marriott, Yum! Brands, Schlotzsky’s and more.

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The wide array of brands and industries represented at the event helped drive the message to policymakers that franchising has a significant economic impact in California, which continues to thrive in the current regulatory climate due to the partnership that exists between franchisees and franchisors.

Mark Justice, EVP & COO, MR. Stax, Inc., an IHOP franchisee based in Valencia, echoed the importance of being engaged in IFA’s advocacy efforts. “An eye-opening experience! Not only did we influence and educate our state’s lawmakers about the franchise business model, we walked away with a better understanding of the political process in California.”

Attendees heard from several Committee Chairs and leadership from both parties in the morning as well as Nancy McFadden, a top advisor to Governor Jerry Brown, before breaking into smaller groups for more than 40 meetings with individual legislators throughout the afternoon. The meetings were a resounding success.

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Chris Mesker of The Entrepreneur Authority in Sacramento explained, “It was clear to me that our legislators were interested in learning how franchising is really geared for the small business owner vs. large corporation. Getting the opportunity to educate them on the business model and economic impact was a huge step in having them understand how vital we are to the fabric of California. The impact we made was very apparent. It was a great day and I can’t wait to be involved moving forward.”

During the meetings, attendees shared stories about their businesses and the importance of  franchise businesses in California and the nearly one million jobs they create. In a proactive approach, IFA and its members made the most of their time with legislators, advocating on behalf of this proven business model.

“Without the face-to-face legislative interaction with the IFA and its members, many legislators and their staff would have no exposure to franchising and a limited understanding of this small business employment engine,” said Don Conger, of Financial Services, Inc., the franchisor of Sir Speedy and TeamLogicIT, among other brands based in Mission Viejo.

Driving this message home was Don Higginson of The UPS Store in San Diego. “The jury is out on franchising. This business model has been around nearly 50 years now and has flourished under the current regulatory system.”

In conjunction with the event, an op-ed by IFA President & CEO Steve Caldeira and Mr. Rooter of Sonoma County franchisee Saunda Kitchen appeared in Fox & Hounds, entitled “Franchise Business is a Team Sport”. The op-ed provides a unique look into how franchising allows entrepreneurs to go into business for themselves, but not by themselves with the support of a franchise system.

Moving forward, IFA will continue its outreach and engagement in California inviting legislators to in-district meetings and roundtables this spring and summer.

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The slippery slope of government intruding on contracts in franchising…and beyond

 

 

This week, Maine is set to hold a hearing on so-called “Fair Franchising” legislation (LD 1458). This legislation, like many others, opens up a Pandora’s Box of ambiguity in contract terms that threaten the basic and proven tenets of the franchise business model, which is all about maintaining the brand, and would leave both the franchisee and the franchisor liable for potential litigation down the road.

The result?  More franchisors and franchisees will be fighting lawsuits versus working together to grow their businesses, add jobs and make the U.S. economy stronger.  Meanwhile, consumers would have a less consistent experience at franchise locations.

The International Franchise Association is working to educate lawmakers in Maine (and elsewhere) about why LD 1458 has damaging provisions that would harm the franchising industry and the 74,100 jobs it supports at 3,674 franchised locations in Maine, which pump $7.4 billion annually into the Maine economy.  Now is a good time to remind folks why IFA is fundamentally opposed to further government regulation of franchising.  The word “further” is a key point here, as the franchising industry is already highly regulated by government at both the state and federal levels, by commercial contract law, state investment law and nationally by the Federal Trade Commission.  Additional regulation is not only bad for business, but it’s bad for the free enterprise, market-driven system that our great nation was founded upon.

To be sure, going into business is inherently risky.  However, without risk, there would be no opportunity for success.  When a person starts a business of any kind, there is a risk of failure, and there is perhaps a greater risk that things won’t work out exactly as planned or envisioned.  Is that fair?  One could argue that it depends on your perspective.

With franchising, due to the contractual nature of the model, there are adequate opportunities for both parties to assess through due diligence the risk before a contract is executed.  The franchisor can evaluate the prospective franchisee and ask questions about if he or she is financially qualified, will be a good operator, and will follow the franchisor’s operating system.  The franchisee gets a detailed disclosure document with information about the franchisor, its business history, and its financials.  The franchise contract spells out the obligation of both parties to each other for the term of the agreement.  At the end of the day, both the franchisor and franchisee can make the decision to sign the agreement or not.

So what are some of the consequences of these so-called Fair Franchise bills?  With regard to Maine, there are several provisions that are very problematic and damaging to the franchise industry.  For instance, franchisors could not terminate, cancel, or fail to renew franchisees for refusing to take part in promotional campaigns for the products or services of the franchise that promote profitability.  That means non-compliant franchisees could benefit from advertising funds contributed by other franchisees who are following the system.  Franchisees also would be exempt from selling approved products from approved suppliers, which could jeopardize consistency and quality affecting the integrity of the brand.  We hear from franchisees that they want the brand protected as much if not more than the franchisors as it has a direct impact on their success.  These negative consequences hurt both the franchisor and franchisees.

In most cases, the root cause of tensions in franchise relationships is due to communication and transparency breakdowns.  Franchisees who feel they are being treated unfairly are encouraged to leverage the many mechanisms in place within the overwhelming majority of franchise systems to work together with the franchisor to resolve issues.  Franchisors ought to be transparent and consult with their franchisees when implementing a new relationship with a vendor, or implementing a new policy across a system and show franchisees why it will ultimately help them.

Franchising works when franchisees are profitable.  If franchisees don’t make money, franchisors don’t grow their system, don’t expand their royalties, and they certainly don’t create the jobs this country desperately needs.  In most systems, communication is very good between franchisees and franchisors.  IFA encourages all of its members to abide by its Code of Ethics, and while not a self-governing body, we believe the best course of action when tensions or disputes arise is through a private dispute resolution, before any legal action is taken.

An IFA-commissioned task force of leading franchisees and franchisors formed last fall is working toward the completion of a core set of principles that it believes franchise businesses should abide by to stave off conflict.  Fundamentally, their intention is to avoid conflict from the get-go by promoting transparency in franchise agreements and trust in franchise relationships.  If things do go wrong, mechanisms should be in place that are understood at the beginning of the contract phase by both parties to address the concerns.

IFA will continue to work to identify best practices to better the industry.  Litigation should always be a last course of action.  Government intrusion in a private right to contract is unnecessary, and will only result in unintended consequences for both franchisors and franchisees.

For more information about the consequences this legislation could have on the economy in Maine, click here

NLRB Allows Deadline to Pass, Will Not Challenge Employee Rights Poster Ruling

Last May, the U.S. Court of Appeals for the D.C. Circuit ruled that the National Labor Relations Board (NLRB) had overstepped its authority and infringed upon employers’ free speech rights when it issued a regulation requiring employers to put up a poster in workplaces with an unbalanced and biased overview of employee rights under the National Labor Relations Act. The employer community prevailed in this suit, brought by the National Association of Manufacturers and the Coalition for a Democratic Workplace (CDW). It also prevailed in a suit brought by the U.S. Chamber of Commerce, in which the U.S. Court of Appeals for the Fourth Circuit denied the Board’s petition to reconsider its decision that the NLRB lacked the authority to require the poster.

Last Friday, the deadline for the NLRB to petition the U.S. Supreme Court to review the DC Circuit’s decision passed, effectively ending the debate on the issue that sparked outrage from the employer community.

“The IFA is pleased that the NLRB has declined to challenge the appeals court’s decision to invalidate the employee rights poster requirement,” IFA President & CEO Steve Caldeira said in a statement. “The NLRB was wise not to appeal a decision that swiftly and unambiguously rejected the Board’s aggressive overstepping of its authority in requiring an unbalanced workers’ rights notice that deprives employers of their free speech rights and misguides the workers it was designed to inform.”

Although the employer community is still at odds with the NLRB over other significant regulations and decisions, it appears that the threat of the employee rights poster has been neutralized. IFA remains committed in its advocacy for workforce policies that benefit both workers and employers, and stands prepared to protect the franchise business model from such ill-conceived and damaging labor regulations as those promulgated by the NLRB.

 

 

Prominent Economists’ Address the Reality of Raising Minimum Wage

Several prominent economists have recently expressed their concerns surrounding the latest union-backed protests to raise the minimum wage. In his Op-Ed published on December 4, Douglas Holtz-Eakin, president of the American Action Forum and former Chief Economist of President George W. Bush’s Council of Economic Advisers, addressed the recent discussion surrounding minimum wage. Holtz-Eakin argued that raising the minimum wage will further slow the nation’s economic recovery, prevent job creation and ultimately harm those who continue to struggle.

According to Holtz-Eakin, raising the minimum wage will perversely affect the unemployed and low-skilled workers, broadening barriers and further stifling job growth. “Great distress and good intentions, however, are not the same as sensible policy.” he wrote.

He goes on to explain that, “80 percent of minimum wage workers are not actually in poverty, increasing the federal minimum wage to $10, as some have proposed, wouldn’t benefit 99 percent of the people in poverty.” Holtz-Eakin’s position on economic recovery is not destroying jobs but rather creating them, and “imposing a $5 to $15 billion price tag on small and new businesses that dominate minimum-wage job creation would simply get in the way”

On December 5, protesters led by the Service Employees International Union (SEIU) picketed several quick service franchise restaurants throughout the country while advocating for an increase in the federal minimum wage. These union-driven, minimum-wage protests disregard that the federal minimum wage was made for entry-level, low-skilled positions. For franchise small business owners, increasing the minimum wage would substantially decrease bottom line. With lower earnings, businesses would be less able to hire new employees and be forced to reduce training and management opportunities for existing ones.

Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute and former Chief Economist of the U.S. Department of Labor, also voiced her opposition to raising the minimum wage in her Op-Ed entitled Make It Easier to Create Jobs, “Rather than raising the minimum wage, Congress and the president need to make it easier for firms to create jobs so labor would be in greater demand and workers would have more ways to move up.”

Increasing the cost of labor in the current economy will result in higher prices for consumers, lower foot traffic and ultimately loss of entry-level jobs. As Holtz-Eakin illustrates, a better way to help people, especially those in need, “is to improve the economy and the job market, and empower workers with the skills they need for better jobs.”

 

#FranStories: The Franchise Industry Is Weathering The Shutdown, But Concerns Are Growing

 

 

Entering its second week, the government shutdown continues to hurt the U.S. economy. Now, with the debt ceiling approaching, the International Franchise Association reiterates its call for Congress to pass a Continuing Resolution to fund the federal government and raise the debt ceiling. Dealing with our long-term entitlement challenges and our growing debt is critical, but the government shutdown and uncertainty over raising the current debt ceiling is hurting franchises today.

As reflected in the chart below, the Franchise Business Index, a gauge of the overall health of franchise sector, took a dive during the three-month debt ceiling crisis in 2011, falling in July, flat-lining in August and going negative in September.

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“Franchise business owners want their elected officials on both sides of the aisle to put aside the partisan rancor and negative rhetoric so we can get this economy moving again,” said IFA President & CEO Steve Caldeira. “We have seen this happen before, and without question Congress and the administration’s inability to come to agreement on long-term economic policy puts downward pressure on job growth and franchise development in the franchise sector.”

We’ve collected stories from IFA Members to illustrate the impact on the ground. For franchises, heightened uncertainty, reduced consumer power, and tighter credit conditions will be headwinds for the sector if the shutdown continues. However, franchises, as they have done throughout the weak recovery, report that they are weathering the storm, finding ways to grow and create jobs.

Share with us your stories by email or twitter. Tweet at @Franchising411 or using the hashtag #FranStories.

Franchises and the shutdown:

David Leonardo, Chief Development Officer At Wild Wing Café in Florida, Is Seeing A Boost From Furloughed Workers Looking For An Escape, But Is Concerned About Impact On Spending If This Continues. “Amid the government shutdown, people are seeking an escape at times, and Wild Wing Cafe can be that for a lot of people — including government workers. We anticipate this trend in restaurant revenues continuing, however with government uncertainty, we know that can impact spending habit. We know people could hold back from going out if they don’t know what lies ahead — but we’re doing everything in our power to support their need for an escape from rigors of everyday life.”

Fact: With the shutdown, 800,000 federal workers are furloughed without pay. That’s 800,000 people with less money to spend on travel, food, services and goods from franchise companies. Further, with these workers at home, personal services such as home and lawn care are also taking a hit.

For Jennifer Jackson, Director Of Development For Hungry Howie’s Pizza in Michigan, The Shutdown’s Impact On The SBA Has Stalled The Launch Of A New Business. “The government shutdown has greatly impacted Hungry Howie’s Pizza franchisees, as there are not any loans going through the SBA. For example, we have a development deal in the Houston area, and are set to begin operating, but due to the government shutdown, our franchisee is unable to get approval on the Franchise Registry nor get the funding to begin the process.”

Fact: Access to loans is already a key concern for franchises with an estimated lending shortfall of more than 9 percent in 2013. The shutdown compounds this existing problem as every day the government is unfunded, $13 million in Small Business Administration (SBA) loans to small business are foregone.

Matt Patinkin, Owner Of Auntie Anne’s Pretzels in Illinois, Is Concerned About The Impact Of Increased Uncertainty On Customers. “The government shutdown creates uncertainty on the part of consumers.  The longer the shutdown continues, the greater this uncertainty becomes, and that causes our customers to hold back.  We’re a consumer driven society, so if that happens we all suffer!”

Fact: Even prior to the shutdown, self-reported daily spending dropped $11 to $84, the lowest level since February.

While Franchisees Have Solid Plans And Are Weathering The Shutdown, The Impact Of Cuts To Government Contracts Can Be Felt Several Layers Down According To Jeff Connally, CEO and President of CMIT Solutions in Texas, An IT Consulting Franchise. “We have more than a handful of franchisees in the D.C. market, many of which who have clients with government contracts. When a shutdown like this occurs, the trickle down impact can be felt several layers down. Our franchisees have been in regular contact with their clients, and we make ourselves indispensable, but this certainly adds pressure that our clients did not expect for this year. Our franchisees have a solid plan in place and are weathering this nicely. Hopefully this won’t be an issue for very long.”

Fact: The ripple effects of the government shut down have extended as far as Antarctica, where scientists who were set to begin studying the area are now on hold.

For Roger Murphy, CEO And President of Murphy Business & Financial Corporation in Florida, A Business Brokerage Franchise, Increased Uncertainty Reduces Business Transactions. “When there is uncertainty in the air, business transactions take a hit. This event, coupled with other factors at play now, i.e. the Affordable Care Act, make planning for buying a business even more difficult.”

Fact: From September 30th to October 6th, Gallup’s Economic Confidence Index experienced its largest drop since the week of Lehman’s collapse.

Stephen Dixon, Chief Development Officer Of Childrens Lighthouse Learning Centers in Texas, Hopes His Company’s Education And Child Services Help Furloughed Government Employees In Their Time Of Need. “Our franchisees across the country build deep, meaningful relationships with the families they serve. Franchisees certainly know when stresses such as government shutdowns keep people from working. Uncertainty is amidst, but we are always there for our families, helping when we can to make certain that our education childcare is available to them. Our franchisees appreciate their loyalty and return the favor in unforeseen circumstances such as these.”

Fact: In addition to the 800,000 federal workers furloughed without pay, another 1.4 million government workers may see paychecks delayed.

Call your Senators and Representatives and let them know how the government shutdown is impacting YOUR business and the franchise industry. Call (202)224-3121 and ask for your Members’ offices. Don’t know who your Members of Congress are? Find out here! Share with us your stories by email or twitter. Tweet at @Franchising411 or using the hashtag #FranStories.