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Building a Stronger System Through Technology and Compliance

Set your expectations up-front, track what is necessary and show franchisees how compliance can lead to profitability.

Set your expectations up-front, track what is necessary and show franchisees how compliance can lead to profitability.

There are franchises to sell, average-unit volumes to raise, franchisees to support, your social media reputation to protect and you want to talk about compliance? That can come later, or so you think.

What is Compliance?

Compliance has many definitions and synonyms, but the two that illustrate the ambivalence of compliance in franchising are “obedience” and “fulfillment.” On the surface, those terms are contradictory, but when approached correctly, you, the franchisor, can get obedience while your franchisees experience fulfillment.

Compliance means many things in franchising, but for this article, we will focus on sales and franchise operations. Even within this limited range, there is an abundance of data one could measure and manage. At Great Clips Inc., Carolyn Bastick, programs and systems consultant who runs the compliance program, says they track more than 40 compliance points ranging from nonpayment of fees to performance standards to salon upgrades. She says, “Compliance touches everything. It’s very flexible and grows with the system and its new requirements.”

Why It’s Important

Compliance drives consistency. This is what most consumers want from a franchise brand: the same experience and value in every location. That consistency and branding drives both unit and franchise sales so the entire system can grow.
Deadlines are important. Adherence to systems and deadlines help everyone remain in contractual compliance so you need a method to track deadlines, predict the process and initiate it. Begin by understanding your franchise agreement and your role in the renewal process. Bastick says that their online system is used to create points, which, if accumulated and not removed by curing the deficiencies, could block a renewal or expansion.

Definition creates expectations. Use your manuals to define the standards and the default items. At FranWise, we advise our clients to define their standards, call out default items and describe the cure process in their operations manuals. Define your grading system for onsite visits too. Create weighted averages then measure the items that will produce the customer experience the brand represents, leading to greater AUV and franchisee profitability. There should be no surprises because the franchisees know the standards and measurements, the process, when the reviews will happen and what the consequences will be for non-compliance.

Danessa Itaya, vice president at Maid Right, has her field team using an iPad app, Maid Right Tracker, to manage home inspections. “The quality assurance manager inspects the home, scores the cleaning and emails it directly to the unit franchisee. It is maintained in our proprietary software and allows us to be proactive at awesome customer retention, and gives us guidance for re-training.” It also creates detailed procedures for curing defaults and raising poor inspection grades. There is no reason to point out defaults and deficiencies if there is no path to improvement.
Objective data wins lawsuits. The ugly truth about franchising is that there will be lawsuits. When claims are made against you, it takes facts and dates to refute them. If you choose not to renew a franchise agreement, it will take a detailed account of the franchisee’s failure to perform according the to the system standards to get that past the courts. Without a strong compliance program, proving your case is nearly impossible.

History creates your future. At the last Dealmakers’ Summit, there was a lot of talk about the importance of compliance. Amy Cheng, a partner of the law firm Cheng Cohen, drove home the point that a well-executed compliance program is a key component to your exit strategy: Before someone invests in or buys your system, they want to know everything about it. A complete and accurate state of affairs makes your company the more desirable acquisition. Don’t be afraid of the “dirty laundry.” We all have it and it will come out eventually. Lay groundwork today that leads to your easy exit in the future.

How to Track and Manage the Information

Franchisors have been tracking performance and compliance since franchising began, and many manual systems still function well. But today’s technology allows a greater reach, faster access to the data you need and more ways to use it to improve performance. There are many technological solutions available, ranging from in-house intranets to the major franchise management software companies such as IFX, FRM Solutions and FranConnect.

Tom Regev, vice president of operations for Menchie’s Frozen Yogurt is just starting to convert the more than 300-unit chain to an automated system. Regev says, “It is a function of size. There is balance between the investment in technology, to size and manual solutions.”

But Iric Wexler, CFE, vice president, development of FranForward, remembers his days at The Cleaning Authority. “We had the vision of what we wanted to measure and capture when we started in 1996 and helped drive the technology to accomplish that.”

Using technology is convenient, accurate and quick and several technologies can be married for the best results.

When TCA had approximately 150 franchises, the company started their first electronic disclosure program, “E Disclosure.” “The FTC was encouraging us to use e-disclosure, so we jumped on board,” Wexler said. TCA now uses a combination of platforms that include proprietary systems and Process Peak. “We have nine full-time, in-house programmers; our technology allows each franchisee to see his performance and profitability immediately. TCA measures every aspect of the business in real time.”

Tim Johnson, president of Process Peak, has introduced a new compliance technology, “Reputation Management.” He says, “With a glance at the dashboard you now know if your franchisees’ messaging is compliant and you can react quickly. This technology makes it easier to get advertising copy approved and to the market where it will drive AUV.”

Itaya is blending technologies to get the results she and her franchisees need. “Most think of house cleaning as low tech, but we apply technology to help Maid Right develop systems, benchmarks and ensure compliance. We developed some of the technology in-house and purchased Listen360 and FranConnect’s Franchise Opener to prepare, train and ensure new master franchisees are following the necessary steps to open their business.”

Mary Ann O’Connell, CFE, is the president of FranWise, a franchise consulting firm specializing in operations, compliance and franchise relations.

Mary Ann O’Connell, CFE, is the president of FranWise, a franchise consulting firm specializing in operations, compliance and franchise relations.

FRM Solutions’ Legal/Compliance module allows franchisors to spend more time focusing on franchisee profitability. Pres. Stan Friedman, CFE, says, “It leaves the administration of compliance issues to technology.” Their client, Louis Loeb, CFO of Global Franchise Group agrees. “We are able to track the date that an FDD is received by prospective franchisees, ensuring that the document is executed after the required 14-day wait period, and we are able to create customized reports, like alerts for upcoming franchise renewals.”

According to Dan Martin, CFE, founder of IFX, “It’s all about incorporating a database for managing leads, workflow and reporting. Use technology designed to manage and document the entire franchise tenure.”

Using technology is convenient, accurate and quick and several technologies can be married for the best results. Your choices will be based on your budget and company culture, but whatever you choose, set your expectations up-front, track what is necessary and show franchisees how compliance can lead to profitability. You will get obedience while providing fulfillment.

Mary Ann O’Connell, CFE, is the president of FranWise, a franchise consulting firm specializing in operations, compliance and franchise relations. Find her at fransocial.franchise.org via the directory.

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