At the core of the AAFD’s efforts to promote market driven franchise reform is our dedication to the growth and empowerment of strong and effective franchisee associations. This article is designed to serve as a primer for those who have such an interest.
Why? The first step in forming an association is to develop a platform that answers the question why. Why should you come together as a group? Oftentimes a current crisis can spur a group to form, but we at the AAFD have found that if that is the sole purpose to come together, then in all likelihood the association will be short-lived, whether or not it succeeds in its short-term goal. While a current crisis might provide the impetus to form, a broader range of goals can lead to a more stable and sustainable organization. A few of the reasons that associations have been formed include:
- Strength in numbers. At its essence, you are forming an association to aggregate the influence of franchise owners to protect the collective interests of your fellow franchisees and to influence positive change. Interests of members who share common interests and concerns are represented more effectively through a formalized support group, rather than speaking as individuals. Negotiation of any matter, resolution of any problem or any attempt to influence change within the franchise system is doomed to be ineffective if left to negotiation between a single owner and the franchiser. However, if such matters are brought forward by a strong collective effort that has debated the pros and cons, formalized a well-supported position and has the backing of the independent owners, then the message has a better chance of being heard.
- Dispute Resolution Activities: Many associations are born to address a crisis or in response to a system-wide dispute. In such instances, your association will, at a minimum, be a resource to monitor the problem and engage in a group effort to resolve the dispute. One of the advantages of an owners association is to engage legal counsel on a shared cost basis. Indeed, the AAFD counsels all associations to engage quality legal counsel even in the absence of a dispute—just as your franchisor engages qualified counsel on a pro-active basis, franchisees are better protected by having available legal advice.
- Peer-to-Peer Communication: While the importance of monitoring events and dispute resolution cannot be overstated, the opportunity to communicate with other owners who share common interests, obstacles and opportunities is an equally important and vastly more interesting reason to join an association. The training sessions offered by a franchisor can be very helpful, but nevertheless, the franchisor’s trainers are staff personnel that are not in the field and who do not own their own business. They do not possess the same experiences that small businessmen and women encounter every day, whether the topic is cash flow, business practices, effectiveness of advertising campaigns, personnel management concerns, or any of a myriad of other topics that may arise. Most owners appreciate the opportunity to share and discuss the on-goings of their marketplace with other owners. Some of the more common forms Peer-to-Peer communications take include:
a. Meetings that combine a formal agenda on a variety of topics that members have expressed an interest in and an informal time to gather and socialize are invaluable as they allow members to seek out other owners whose advice they value.
b. Internet contact – in addition to the scheduled meetings many associations provide a direct pipeline to other members through the Internet. The ability to broadcast a question and receive multiple responses from people with similar concerns provides a great opportunity to quickly solve a problem and perhaps more importantly, may result is greatly reduced costs as missteps are avoided.
c. Newsletters – while some organizations have gone “paperless” utilizing just electronic communications, others still find a place for hard copy newsletters, especially if they are utilized as an integrated marketing strategy to reach out to on-members as a recruiting tool. Sometimes the demonstration of member benefits is still the most effective tool plus it gives sponsors another opportunity to touch a potential customer.
- Advisory councils are a common tool utilized by many franchise systems. While sponsored advisory councils may provide a certain level of service, nominees from an independent franchisee association can provide a perspective that more closely reflects the interests of the franchisees.
- Purchasing Co-operatives – Some franchise systems have agreed on which of their members the best negotiators are and then put them in-charge of a purchasing co-op to the benefit of all members. Such efforts generate not only great discounts up front, but also rebate programs based on achieving volume targets and perhaps equally importantly can serve as a means of funding much of the activity of the association.
- Other Member Benefits – Some organizations find the concept of a purchasing co-operative a bit overwhelming. On the other hand, a thread of common benefits that every owner needs can be the glue to hold an organization together. Such common needs could be a payroll system, an insurance broker that really understands the needs of a franchise system, a low-cost credit card solution, an HR support system for a business too small to otherwise be able to afford such help, common purchasing power for computers, office supplies, furniture, etc. The list could be long and tailored to a particular system.
Who? Who should lead the organization of the association? First, whoever has the passion and zeal to get it done should lead the charge. However, the first thing the leader(s) should do is identify several outstanding franchisees who can command the respect of the other owners (and ultimately your franchisor), and who will be influential in attracting members into the association. Attracting these top performers is critical to the cause.
How Many Members Do You Need? There is no single answer to this question. The target should be enough members to be representative of the franchise system. In most systems, at least 50 members would be a meaningful measure of success.
What Should We Charge for Dues? The amount of dues depends on your projections for membership as a factor of what budgeted activities you envision. Some organizations actually charge no dues, but they have established a pipeline to preferred providers who are willing to pay supplier dues or rebates that are sufficient to fund the association. Some of the costs to consider include whether or not you will employ contracted services for association management or rely solely on volunteers. While volunteers may sound like a low-cost solution, it has been our experience that all volunteer associations eventually crumble because the volunteers already have a full-time job, managing their businesses.
The Steps. Once the groundwork has been laid, there are a series of steps that can lead to the successful formation of the association:
a. Steering Committee – the initial committee essentially fulfills the management role of a startup association until such time as there are sufficient members and resources to establish a formal entity and elect a board of directors.
b. Development of the Association Mission – At an early time, the founding members should build a mission and goal statement, and identify the issues, goals and objectives of the association, as well as a defined strategy and adopted projects aimed at accomplishing your mission. The AAFD recommends the development of a positive mission that will be easily embraced by the rank and file franchisees, and ultimately by your franchisor. At the end of the day, your goal is likely to have your association recognized and accepted as a valuable asset of a flourishing franchise system and brand.
c. Membership recruiting – Effective member recruiting requires a peer-to-peer effort. We have seen many instances of owners trying to employ third party telemarketers to call prospective members only to find that such an effort ultimately fails dismally. The reason is quite simple; owners do not want to talk with outsiders about their personal business matters, but they are willing to listen to their peers. To do effective recruiting, the Steering Committee should establish a protocol for an ever-expanding “call tree” in order to solicit new members as additional recruiters.
d. Legal Organization – once you have an indication that recruiting efforts will be successful, you should consider a legal structure that can both protect the officers and directors as well as establish the by-laws and governing instruments to use. One important consideration will be the taxability of your entity. Many associations are non-profit and mistakenly believe that that also means non-taxable. Generally this is not the case, as the IRS Tax Code only provides tax free status to associations that are ‘generic trade associations,’ i.e., open to all comers. A brand specific association obviously does not meet those criteria.
e. Nominating Committee – while the Steering Committee may have served as de facto officers, the fact is that they did not go through an elective process. That should be corrected by an elective process to both nominate and elect your board and officers.
f. Installation of officers and ongoing operations. Once elected and installed, the new officers should derive a proposed scope of operations. Some of the items to consider include:
a. Number of Board Meetings to hold – both telephonic and in person
b. Committees to be established, including as appropriate: Membership, Purchasing, Education, Advertising
c. Member meetings – form, frequency, location
d. Communications as noted above – frequency and form
e. Reporting – do not overlook the need to file necessary documents with the secretary of state and tax authorities as appropriate.
The above list is not intended to be all inclusive, but rather to provide a guideline of possibilities to consider.
How the AAFD can help. While the steps needed to organize an association may appear to be daunting, the AAFD is in a terrific position to save you both time and money. We have been in the association “birthing” business for 20 years and the AAFD prides itself in serving as your catalyst to trigger your launch, as a cost effective vehicle to serve as your legal entity, and offers an impressive array of tools to infuse your success. Those tools include:
a. Save $ and time immediately – do not incur legal costs of forming a corporation but rather form an internal chapter under the AAFD umbrella – not only avoid the unnecessary steps of incurring legal expenses to form a corporation, but also share in the tax-exempt status of the AAFD and avoid ongoing state and Federal filing requirements.
b. As an internal chapter, you will receive:
• Sample By-Laws and Organizing Minutes that can serve as a template that can be tailored to your needs.
• Recruiting scripts and free conference calling bridges that will assist your recruiting efforts.
• Advice on how to structure a “win-win” dialog with your franchisor in a disciplined and cohesive manner.
• Chapter administration services including a membership database and mailing and collecting of monies for both new and renewing members.
• A “carve out” of monies collected to be spent as discretionary funds by the chapters (an amount that can be adjusted to suit your needs).
• A built-in Supplier program to provide much of the function that a purchasing committee might consider. AAFD suppliers are more generic in nature which provides an opportunity for chapter purchasing committee to focus more on brand specific needs.
All of the above services are provided as part of your AAFD dues for all AAFD chapters (regardless of size or maturity). The AAFD offers many other services to support successful associations, some of which are offered at no additional charge under certain conditions.
The AAFD strongly believes that there should be an owners’ association in each franchise system. Whether you do it though the AAFD or independently, we hope that you will consider forming such an association. Contact the AAFD to learn more about our chapter program.