International Franchise Association | FranchiseMoneyMaker.com

When “Common Sense” isn’t so common – Franchising Regulation

Posted on May 21, 2023 by Franchise Strategist

When “Common Sense” isn’t so common.
Request for Information – Franchising Regulation – FTC

Original Published Date: May 19, 2023
Author: WorldWise Franchise

Anti-Franchisee lobbying organizations are “worried” and “concerned” that the overwhelming majority of comments to the Federal Trade Commission (Requests for information concerning Franchising) are by Cherished Franchisees concerning many of the issues we have been promoting on behalf of Franchisees are now bubbling to the top.

So much so that they are offering to literally write responses on behalf of those of the same “ilk” that oppose anything that might benefit Cherished Franchisees; you’d expect nothing less from a trade/lobbying organization who’s sole purpose is to oppose fundamental fairness and “Total Quality Franchising” on behalf of Franchisees. “Fair Franchising Standards” is not part of their lexicon. Expected as well when you consider that nearly 50% of the revenue for one particular organization amounts to those monies being used for salaries and benefits for those employed by it.

When inside the beltway of DC, never having to have mopped a floor, cleaned a room, drove a van in a service area, climbed a roof, scrubbed a grease trap, or owned a franchise this is great work if you can get it and the perks are plentiful. Cherished Franchisees don’t have donors ready to write checks so they can meet Friday’s payroll and monthly expenses. Its hard work.

AAHOA, The Asian American Hotel Owners Association (aahoa.com) , is Americas Largest Hotel Organization representing 60% of all hotels owned, 20,000 thousand hoteliers, and some 36,000 hotels. Founded in 1989, their “12 Points of Fair Franchising” strongly state their position as a unified and incredibly viable force to perfect and enhance the franchise model for Cherished Franchisees, its own and others.

The American Association of Franchisees and Dealers (AAFD.org) was founded in May of 1992 with its original mission to “Bring Fairness to Franchising” and it hasn’t stopped since. In fact, its “Franchisee Bill of Rights” was promulgated in 1996 and still stands today as the definitive objectives to be achieved by Cherished Franchisees. The desire, of course, is to accomplish this in conjunction and collaboration with enlightened and fair franchisors who know that happy Franchisees make for the strongest of franchise systems.

CFA, The Coalition of Franchise Associations (thecfainc.com) founded in 2007, was formed with the mission “To leverage the collective strengths of franchisee associations for the benefit of the franchisee community”. The “Universal Franchisee Bill of Rights” outlines the necessary elements of fair franchising. The “Universal Franchisee Bill of Rights” is a hybrid compilation from significant work that has been done by the AAFD, AAHOA, AFA, CFA Fair Franchising Committee, individuals from those prominent organizations, and other friends and supporters of Franchisees. It is the intent that we create a “Universal Franchisee Bill of Rights” that no one organization can claim as their own, but members of the greater franchise community can endorse.

As to the title of this article, “When “Common Sense” isn’t so common” we find the reasoning and rational of those opposed to these organizations as well as what they stand for and promote as being without plain and fairly straightforward common sense. You’ll find posted within this article the stated objectives of each of the organizations and for all intent and purpose, their combination as being a representative sample of “common sense” on behalf of Cherished Franchisees.

To deny that any of the standards and statements made belies clear common sense. Cherished Franchisees know it, franchise attorneys know it, anti-Franchisee trade and lobbying organizations know it, Legislators know it, and of course, the Federal Trade Commission knows it better than most. Thus the FTCs “Request for Information” concerning franchise regulation.

As of the date and time of this writing, there are 248 posts overwhelming in favor of franchise regulation change: (https://www.regulations.gov/docket/FTC-2023-0026/comments)

You’ll note also that many are marked “anonymous” for fear of retribution by their franchisors which unfortunately has proven itself to be true in far too many cases.

Now is YOUR TIME to add your voice, to express your opinions and to be heard by the agency that counts most at this time, The Federal Trade Commission.

We can’t stress the importance of taking advantage of this opportunity. Please submit your comments. Here is the link to submit your comments.

https://www.regulations.gov/commenton/FTC-2023-0026-0001

To look at the full Request for Information, you can see it here:

https://www.ftc.gov/system/files/ftc_gov/pdf/Franchise-RFI.pdf

Should you require any additional information, feel free to contact us directly.

Document Links:

AAFD Franchise Bill of Rights

AAHOA 12 Points of Fair Franchising

CFA – Universal Franchise Bill of Rights

Good News for Franchisors: New Favorable Accounting Rules Go Live!

Posted on February 20, 2021March 10, 2021 by Franchise Strategist

Good news for franchisors: New favorable accounting rules go live!
By Michael Iannuzzi
Posted with Permission from Franchise News Wire

Who said accounting was boring? For the past two-and-a-half years the International Franchise Association’s Financial Accounting Standards Board (FASB) Task Force has been working with the FASB to issue guidance to help reduce some of the cost and complexity in applying Topic 606 — revenue recognition rules over initial franchise fees. On January 28, 2021, the FASB released Accounting Standards Board Update 2021-02 to Topic 606, an “expedient” that can be adopted by non-public franchisors on their December 31, 2020 financial statements. What does this mean for non-public franchisors?

During the year-end December 31, 2019, non-public franchisors that issued their financial statements prior to the FASB issuing an election to defer Topic 606 during June 2020, were tasked with the challenge of implementing Topic 606 for the very first time by following these steps:

Step 1 – Identify the contract with a customer (in our case, a franchise agreement)
Step 2 – Identify the performance obligations in the contract (training and the right to use the license, as examples)
Step 3 – Determine the transaction price (the franchise fee paid)
Step 4 – Allocate the transaction price to the performance obligations (determine the value to be received, more on this later)
Step 5 – Satisfaction of performance obligations (delivering the service)

The current method (prior to issuance of the expedient)
The struggle for franchisors was how to identify the performance obligations in Step 2 and how to value the transaction price to be recognized as revenue in Step 4. Using pre-opening training as an example, many franchisors offer training that is specific to their brand as well as generic training, such as how to use QuickBooks. The challenge was to separate the training into brand specific vs. non-brand specific trainings (Step 2), then to come up with a value to allocate (Step 4), and ultimately recognize a portion of the initial franchise fee as revenue and record the remaining initial franchise fee as deferred revenue to be recognized over the life of the franchise agreement. This proved to be very difficult and costly for franchisors of all shapes and sizes. There were assumptions made that the entire amount of the initial franchise fee should be deferred and bypass the steps above. That’s not to say that isn’t the case; however, you would have had to do the analysis to conclude that the entire fee should be deferred and not just default to that position.

In applying the practical expedient, “pre-opening services that are consistent with those included in a predefined list within the guidance may be accounted for as distinct from the franchise license.” What does this mean? The intent was to simplify Step 2. In Step 2, non-public franchisors can now look at most of their pre-opening activities and count them as one performance obligation, meaning they are delivering an upfront service to a franchisee. This would potentially allow them to recognize more of the initial franchise fee as revenue, creating an income pickup for franchisors compared to the amount being recognized based on prior rules, as they are now allocating more of the transaction price identified in Step 4 to these costs.

Even though we are in the middle of audit and registration renewal season, these rules could prove to be beneficial for franchisors. The expedient will allow for more representative income recognition and allow franchisors to adjust their opening equity for prior franchise agreements. Careful consideration needs to be given when adopting the expedient. Most importantly, this is meant to be general advice, and franchisors should always consult with knowledgeable franchise and accounting professionals before forming any conclusions.

Michael Iannuzzi is a partner and co-leader of Citrin Cooperman’s franchise accounting and consulting practice. The company provides audit and accounting, business consulting and advisory, and tax planning services to a wide spectrum of clients within the franchise community. Iannuzzi works with franchisors and multi-unit franchisees in a variety of industries, including, but not limited to, fitness and athletic centers, children’s entertainment services such as recreational youth programs and party providers, junk removal companies, mobile concepts, pet hotels, quick service restaurants (QSRs), and grocery stores. For more information, call 212.697.1000 x 1250 or email [email protected]