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Franchise Support: Compliance, Legal, Finance

Franchise Support: Compliance, Legal, Finance (Feat. Mike Isakson)

Transcription:

Amanda: Hello, and welcome back to Franchising with Purpose. I’m your host, Amanda Lepore. Today, we’re finishing up our conversation with Mike Isakson and discussing the compliance, legal, and finance departments. The grouping of these may be a little confusing, but as we learned from Mike, all three are interlinked, along with the operations department to help support you in the different areas of your business. Mike and I discussed how the compliance department makes sure you run your business correctly, how you shouldn’t want to utilize your legal team, and why finance takes a backseat to the operations team. And now, the final piece of my interview with Mike Isakson, I hope you enjoy. All right. So, you mentioned a little bit about this. We talked about audits and quality visits and all those things, but let’s shift gears into compliance, legal. Sometimes they’re together, sometimes they’re separate. So, summarize for me the compliance versus legal. Are they the same thing? Are they different? What does that mean?

Mike: Well, legal, if you will, in my mind, plays a very small part in the franchisee-franchisor relationship. Legal comes in when a franchisee has violated their franchise agreement, has violated their responsibilities to the brand, to the franchisor. There shouldn’t be a lot of legal activity.

Amanda: So, hopefully, we never have legal activity?

Mike: Right. Certainly, the franchisee should have legal counsel looking at the franchise agreement, understanding it before they sign the agreement. But as far as legal, you know, there may be issues, but in a good franchise organizations, those are fairly remote and fairly small. Now, from a compliance standpoint, that’s very, very important. Compliance is that we’re meeting the requirements that are legally set up. They vary by state, there’s federal and state regulations. The franchisor certainly has knowledge of those requirements and needs to ensure that they are being taken care of. So it’s a protection for the franchisor to ensure that their organization is compliant. But secondly, it is also a part of the franchisee’s responsibility so they remain compliant as well as it yearns to the requirements that are established if you’re doing government work that’s funded by insurance companies or government agencies, that you’re in compliance with that. And compliance talks about the strength of the brand. If the brand is strong, it will be more valuable to me as a franchisee because we are compliant, we are operating under the franchise agreement because we want everyone using a franchise model to say this product, from coast to coast, is similar and can be counted on for standards of performance equality. So, the compliance department again is a tool that is closely related with operations and they’re hand in glove. So they’re not too separate that…compliance and operations are very, very closely related. Marketing and sales very, very closely related. And the operations department, by and large, is the finance group for our franchisees. Those are the folks that know how the P&L should look, how the balance sheet should look, what the ratio should look like, what percentage are you spending on labor, what percentage are you spending on promotion. The finance department, for the franchisees, is really embedded in the operations department. Every franchise company has a finance chief…most have a chief financial officer. That chief financial officer is primarily involved in the finances of a franchisor. However, good franchisors will have their chief financial officer also knowledgeable of the franchisee business. And many conferences you’ll see the CFO teaching and talking about the franchisee’s finances, not in specific but in trending because the operations will look at the details, the specific franchisees, but the CFO will look at it and say, “Here are some overarching trends that are involved in the franchise business.” But again, the ops are the ones that are responsible for helping the franchisee understand the P&L, the balance sheet, and the cash flow.

Amanda: Right, for their specific office and their business where the finance man is the very, you know…here’s what your benchmark should be, or here’s kind of where the industry is trending and all those things.

Mike: That’s exactly right.

Amanda: Got it. A question…and that was such a good answer, Mike, that you answered almost all of my follow up questions to the compliance piece. But I do have one and this comes up fairly often, at least in my experience, because we talked a little bit about, at the beginning of this particular segment, about compliance versus legal, the difference between the two. And you mentioned that legal is a very small part and hopefully not really ever a part of things because it really only comes into play if there’s a violation of those brand standards or the agreements or all those things that go into it. But what if I need legal support or advice as a franchisee, is that something that I can go to my franchisor for? Is that something that I should have an attorney, you know, on retainer or someone in my local marketplace that I work directly with to provide that support? What does that look like?

Mike: Again, that goes back to the operations department. Before a franchisee would use outside legal counsel, they should talk to their operations support manager. And oftentimes, that support manager has experienced that before and can say, “Go on the information system, find this document. That’ll solve your problem,” or, “Here is this issue or that issue.” And oftentimes, day in and day out, the general practitioner kind of concept again, a good ops department can help franchisees significantly in those legal areas. In the same breath, they should be very sensitive to say, “This sounds like it is a serious issue and that you should go ahead and get counsel involved and support you on that.” Now, an area that is very driven by local, state, and federal are the employee handbooks. And those are something that a franchisee should ask, “Who provides the employee handbook?” And oftentimes, what I’ve seen is good franchise companies provide a basic handbook which is compliant at many levels but the franchisee needs to be able to take that and customize it to their state, their county, their community because each may have some other issues that need to be involved in. But there are times that the franchisee should engage legal counsel. In the same breath, the accounting department should not be advising on tax treatment or federal or state tax compliance. That, the franchisee needs to deal with their CPA and be involved in that. You need a CPA, an accountant to assist in some of those. The ops group should not be advising on how to do your taxes. That’s not what a franchisor’s operation group should be doing.

Amanda: That’s an important differentiation to note because we talk a lot about the support that the franchisor provides and sometimes that can get cloudy as far as, you know…I’m glad that you mentioned it because legal, IT, accounting, there’s definitely a village that it takes to run a franchise. And your franchisor is a lot of that village, but not all of it. So there are definitely other folks that you need to have involved in your day to day operations. I want to go back to what you said about the operations team because before you, you know, pay for legal services or other things like that, you want to check with them first because it may be something that can be addressed or has happened before that we’ve got supporting materials or education around.

Mike: That’s exactly right.

Amanda: Absolutely. So, again, it all goes back…the moral of the story is, talk to your operations person.

Mike: Yes, and layout the information and take your gall out of it, take your pride out of it and say, “Here’s what happened.” And they may say, “Oh, yeah, okay. Here’s how we can deal with that.” Likewise, make sure…back to ops, one of the things that sometimes franchisees do not do is share the victories. You know, if a franchisee has just sold a nice account, a great relationship with the organization or, you know, hired great caregivers and it’s really working, pick up the phone, send a text to your support manager and say, “Hey, Mary I just wanted you to know, the labor issue is much better and I hired three new caregivers today. They’re really working well. Have a great day.” It’s a two-way street. Sometimes the support people just get the problem. And they love to hear the victories as well.

Amanda: Absolutely. As a franchisor, you know, working in a franchisor, our successes are your successes on the franchisee level. You know, a lot of times it’s, we put things out there and we hope that it works well and we never get to hear the outcome of those things. So, I would definitely echo that sentiment of share, not just the struggles, but the victories as well because that’s how we all move forward. So, I love that.

Mike: Yeah. And going back to our doctor analogy, most of our doctors when we go, they see us, we get the prescription, and then they just assume it’s taken care of. They don’t hear from us. Well, different here. Let’s say, “Okay, yeah, I got, you know… Hey Sally, I just want you to know, this is really working great.” And, you know, that’s the fun part because those strong relationships that are formed are where the fun is, where the joy is.

Amanda: Absolutely. And it goes back to, I’ll go back to the doctor reality because it’s twofold, right? You go to the doctor and they say, “You should probably lose a couple of pounds,” and until they go back the next year, they don’t know if that’s happened. So, share your victories with them. It’s not easy to lose those couple of pounds. So kind of in that same vein, but you mentioned, you know, take your ego, take your pride out of it and be really honest about the situations when you do need help. It’s the same as going to the doctor and not sharing all of your symptoms. We can’t diagnose the problem if we don’t have all the facts on the table. And, you know, I may not want to share that, “Oh, I’ve been more tired than usual lately or short of breath,” or all the symptoms that sometimes we forget to share with the doctor or maybe don’t want to share but those are where we can help the most. So again, take your ego out of it, take your pride out of it, and be honest about the facts of the situation.

Mike: And I think also for the franchisee, has to be very cool and very clear with their support manager as well. A good franchisee should say, “Hey, Bill, I gotta tell you, I didn’t find what you just shared with me at all helpful. I didn’t like your tone. You sounded rushed. You didn’t sound like you cared for me on this. I don’t think you knew what you were talking about here.” Now, hopefully, you don’t have that, but the direct, you know…it’s almost like a marriage relationship. You gotta kind of be cool and clear. And if you’re beating around the bush too much, you won’t get much done because, again, as you said, that’s the beautiful part of franchising, the franchisee grows the business and the franchisor benefits because the franchisor earns its income and its value based on the revenue that the franchisee generates. We’re hooked together. And so we are hooked together.

Amanda: Yeah, we talk so much about the relationship being that of a marriage, right? You go through the dating process, you know, with franchise development and you figure out, “Okay, if this is something that I want to do, and we signed on the dotted line and we’re married.” So just like in any relationship, communication, honesty are paramount. And that’s the only way that we grow together is if we’ve got all those pieces in place.

Mike: Yep, absolutely right.

Amanda: Fantastic. Mike, anything else? So we talked a lot about compliance and legal and finance and accounting, all kind of here in this last few minutes, but anything that you would add, you know, to someone who’s either has purchased a franchise and maybe is unclear about what’s expected and what support they can expect or someone looking to purchase a franchise about compliance, legal, finance, any of those pieces?

Mike: On the finance side I’d really encourage franchisees…new franchisees sometimes fall into the trap of not setting up their accounting system and not getting that established. Get it done right at the beginning so you don’t end up six months later saying, “Oh, I gotta get all this new data entry, and I got to get all this customer information in.” Start out on that front like you’re running an existing business. Set it up correctly, get it going. And then another important part of all of this is, depend on process. And the franchisor provides lots of process. Follow the process, and that becomes the subconscious of the organization, then you don’t have to think about how you do a bank deposit, you don’t have to think about how you use the software, you don’t have to think about the forms you use to hire someone to work as a caregiver. You can focus all or most of your energy on how do you get and keep clients and how do you get and keep caregivers because that’s where you make the money in this business. That’s where you get the return for your risk.

Amanda: Absolutely, 100,000%, I echo everything that you just said. You know, we only have so much energy and we can only make so many decisions in a day. So don’t make decisions on things that you don’t have to that the franchisor has done for you so that you can focus your energies where you need to focus them, which is growing your clients, your customers, your employees, all the things that are going to make you successful.

Mike: Yep.

Amanda: Awesome. All right. Well, thanks so much for being here today. This is a ton of great information. Look forward to talking more about this in the future. Hopefully, we’ll have to have you back. Lots of great sound bites. You know, Charlie’s taken lots of notes over here. So again, thanks so much for being here and we will talk to you later.

Mike: Okay, see you in a couple of weeks for the board meeting.

Amanda: All right, bye. Tell Ginny we said hi.

Mike: Bye-bye. Will do, bye-bye.

Amanda: Bye. Thanks again for joining us on Franchising With Purpose. You can find me on Twitter at Amanda_GHC. And don’t forget to visit Griswold Franchising on social media for more information, Griswold Franchise Opportunity on Facebook, @griswoldfran on Twitter, and Griswold Homecare Franchise on Instagram. And make sure to subscribe wherever you get your favorite podcasts, iTunes, Stitcher, Google Podcasts and check out my personal favorite, griswoldhomecare.com/franchise for more. Did you know you can listen to Franchising With Purpose on your smart speaker. Just ask Alexa, “Alexa, play Franchising With Purpose on Apple podcasts.” We’ll see you next time.

This content is from January 6, 2019. Check out our newer post here.