Business Management Case Study Franchise State Renewal Delays And Disruptions

Writen by Lance Winslow

We are beginning to see a horrible trend in franchising with regards to franchise registration states and franchise registration renewals. What is happening is that the states are requiring certain documentation and company audits to be performed prior to franchise registration renewal.

Unfortunately there are a shortage of accounting companies who are willing to do audits due to the new rules and regulations of Sarbanes-Oxley. With fewer companies able to do audits and backlogs with peer reviews, Franchisors are not always able to get everything in on time that the registration states require for franchise renewal.

What I see now are Franchisors, who are scrambling and juggling, as they have deals pending and they must stay on their growth track. Smaller franchise stores are very susceptible to failure in the early years if they stop growing fast.

I have seen Franchisors temporarily transfer abandoned franchises, terminated franchises, franchises in the middle of transfer and even new franchises two groups of partners, employees, family members simply so they can continue to sell during these franchise registration delays. There are many reasons why a franchisor might do this.

1.) State Regulatory Agency slow on processing or renewing franchise application, waiting on confirmation and deals are proceeding, cash flow tight, move ahead anyway thru legal loop hole?

2.) Audits not in yet, needed for registration or renewal, renewal or registration therefore pending, lapse in time to file the renewal and audit within 90-days. Want to move ahead with deal, due to customer demand, Master Lease on location (Franchisor Cash Flow Tight) and fear of eviction from center or loss of revenue or brand name degrading if company leaves location.

3.) Renewal denied due to Balance Sheet of franchisor, impounding fees required, kiss of death for a franchisor in a registration state, have deals pending, location open, franchisee abandonment, juggle to see that location running.

4.) Transitioning an existing unit to a new franchisee, which has been terminated, but still operating it until sold.

All these are issues new franchisors deal with in adverse registration states in the beginning. Juggling is not fraud if it is legally done. Now then the reasons a franchisor might do this, which are unethical would include;

1.) Hiding a failed unit from UFOC disclosure

2.) Calling Company owned unit a franchise, when it is not.

3.) Misrepresenting facts of the unit

4.) Purposefully and willfully avoiding mandatory registration and disclosure laws in a franchise registration state.

5.) Hiding the fact after the fact that someone lied about that being a franchised unit the whole time. Thus embellishing unit numbers.

The delays in franchise registration renewal and franchise registration states is unacceptable and these delays are caused both due to bureaucrats who can't get their act together and onerous laws, rules and regulations put upon Franchisors making franchise registration renewal sometimes impossible.

We must deregulate franchising if we are to see these franchise businesses survive. Typically franchising outlets account for one third of every consumer dollar spent in our gross domestic national product. It is a very serious issue. Please consider this a 2006.

Lance Winslow - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs/