Joel Libava
A new Franchising Report from Senator Masto was just released. It revealed a lot about the franchise industry.
With that being said, is U.S. Senator Catherine Cortez Masto an evil politician trying to ruin the business model of franchising and the franchise industry?
Or will the tighter regulations she’s suggesting be helpful for people who want to invest in a franchise business?
Now, before you pre-judge the Nevada Senator, read this.
“Owning a franchise business can be a good opportunity for an eager entrepreneur.” I’m in full agreement. As long as it’s the right person, with enough money, and the drive needed to own and operate a franchise business. Senator Masto continues.
“But for too long, some franchise corporations and lenders have been allowed to treat entrepreneurs unfairly, which cascades into low-wage employment and store closings.” Do you agree or disagree?
Well I know one thing for sure; if you’re in the market for a franchise, Senator Cortez Masto does have your back. Check this out.
Franchising Report From Senator Masto: She’s Calling For Tougher Franchise Business Opportunity Oversight
A lot of people feel that franchising isn’t regulated tightly enough….or at least not correctly. I’m one of them. I’m for anything that adds a layer of protection and potentially more profit, for folks who are willing to invest thousands of dollars in this business model so they can become their own boss.
Thing is, I don’t have the power that someone from the U.S. Senate does.
With that in mind, here are 4 things that Senator Cortez Masto is focused on fixing:
- Unfair and deceptive contracts that give nearly all control to the franchise corporation.
- False information and lack of transparency in financial disclosure documents.
- Excessive fees with limited or no actual benefit.
- High prices from suppliers who provide rebates to the franchise corporations, and overpriced goods.
It’s pretty reasonable stuff. I’ll briefly go over each item before I share the 3 ways Senator Masto wants to better protect prospective and current franchisees. I wonder if other members of the U.S. Senate will be on board with her franchising industry proposals.
Senator Masto’s Franchising Report: Unfair Franchise Contracts(Agreements)
If you’ve ever read a franchise business agreement-the contract between the franchisor and the franchisee, it’s pretty one-sided. But here’s the thing.
If you were the franchisor, the person who came up with the franchise business concept, who worked through the trials and tribulations needed to get things right…to make the business worthy of an investment, you’d want the franchise agreement to favor you, too. It’s just business. Now this is important.
If you’re the franchise buyer, I’m going to assume you’re buying the franchise because they have a proven business system in place for you to follow. Your job is to leverage it. To use the tools, training and technology that you get when you become a franchisee. Now allow me to be blunt.
You’re buying a franchise business so you don’t have to come up with a business idea yourself. Right? That means there’s a tradeoff.
In this case, the company with the idea and the business system has the leverage.
If you want in, you need to play be their rules.
Financial Transparency From Franchisors
Franchisors need to do a better job of explaining their financials to would-be franchisees. Period. Shit’s too complicated.
If I had my say, I’d suggest that all franchisors do one thing.
Break down annual average franchise business unit revenue…without *’s. And note the high-end and the low-end revenue numbers. Keep it simple, people!
In other words, don’t say *”The sales figures don’t include franchisees with locations in South Dakota who needed to close their doors for the first two weeks in August of 2019 because of the annual Sturgis Motorcycle Rally.”
Okay. Maybe that was a poor example.
My point again is to keep it simple! Stop with the *******’s!
That way, once prospective franchise owners see the sales figures, they’re free to contact franchisees and get the specifics of their individual franchises. The smart buyers are going to call franchisees regardless.
Bottom Line?
Senator Catherine Cortez Masto is right about the financials, and the much-needed transparency surrounding them.
As for false financial information, can you say “prosecution“?
Excessive Franchising Fees
Senator Masto’s office produced a detailed Franchising Report on the state of franchising today titled, “Strategies to Improve the Franchise Model: Preventing Unfair and Deceptive Franchise Practices.“
The report includes several specific examples of how some franchisors-like this BBQ restaurant, are charging excessive and sometimes meaningless fees.
Tip: when you contact franchisees as part of your franchise research, ask them about (all) the fees and if they feel they’re fair for what they’re getting as franchise owners.
Again, Cortez Masto isn’t asking much. Fees charged by franchisors need to be reasonable and the franchisees need to feel they are getting value from the things they’re being charged for.
Supplier Pricing And Rebates
Here’s an idea for franchisors.
Don’t overcharge your franchisees. Why?
First off, franchisees are your partners. They make you money.
Secondly, franchisees make you money.
As a matter of fact, the more money franchisees make, the more you make as a franchisor. Stop trying to make money at both ends.
As for rebates, if a franchisor receives a rebate from a supplier, should the franchisor pass that rebate along to franchisees?
What do you think?
Does it matter?
Again, what are your thoughts on rebates?
And is this something Senator Masto-and other members of the U.S. Senate need to be involved in?
3 New Ways Senator Masto Wants To Protect Prospective and Current Franchise Owners
Before I tell you about Senator Cortez Masto’s ideas, I need to get the disclosure stuff out of the way.
(Disclosure: I write about franchising for the U.S. Small Business Administration. And I’ve been doing it for a long time-(10+ years.)
Now that you know that, I hope you understand why I don’t feel comfortable commenting on SBA loans and the like.
As a matter of fact, I’m not going to comment on any of the Senator’s ideas. I’m just sharing them. But I’d welcome your comments.
To that end, here are Senator Masto’s ideas on franchising.
- Increase funding and oversight at both the Federal Trade Commission (FTC) and the Small Business Administration (SBA) so they can enforce fair standards and contracts.
- Revise the FTC’s Franchise Rule to provide more investor protection by requiring that franchises provide accurate financial information to investors.
- Ensure the Small Business Administration (SBA) requires franchise companies to provide actual historic revenue data and store closing information to franchisees before receiving SBA-guaranteed loans.
Is Senator Cortez Masto on the right track?
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