Disclosure Dilemma

January 14, 2012

About a year ago, I took a post in the Franchise Sales department after our former manager left to own a franchise.  Like many other businesses, ours has struggled ever since 2008.  We’ve had quite a bit of slow, drawn out contraction and continually decreasing sales figures.  As you can imagine, this doesn’t set up a new franchise sales person for success from day one.  About six months in to my time on the job, my boss was moved to a different department and a new one came in.

Neither of these individuals had any experience in franchising, nor did they seem interested in learning the industry.  After convincing them that it would be worth the time and money for me to attend a franchise sales conference in October, I became far more cognizant of some of the issues with how we were running our own department…and came back with many suggestions – most of which were shot down because it would cost us money.

What continuously came up were two things that didn’t directly cost us money – 1) Transparency is key to attracting the RIGHT new buyers and 2) Having a healthy franchise system is the only real way to sell franchises.  Number 2 we definitely did not have and we knew that we would need to build the trust of a prospective franchisee to sell them on the long-term prospects of our franchise.  In my mind, that’s where number 1 came in – transparency is a fantastic way to build trust.  Sure, you’re going to lose some prospects along the way, but those that make it through the process are going to be strong businesspeople with the same strong feelings toward the future of our company that we have.

So, I went on a transparency crusade, trying to build numbers that could be shared with prospects that, while not great, at least showed that things were trending in the right direction.  One of those figures was net income.   When I took a large subset of franchises from a specific state and averaged out their net income over the last few years, the result was – appalling.  For the first time it really hit me – without some serious business model changes, we couldn’t responsibly sell a franchise.

When I went to my boss with the information (which a prospect had specifically requested) I was told that LEGALLY we couldn’t provide that data.  Funny, since just a few days ago I remember him telling a prospect that average net income per franchise in 2007 (our best year on record) was in excess of $800K.  So why the change of heart?  I’m sure in 2008, when we were selling franchises left and right, the VP of Development was spouting off that net income figure and just waiting for the checks to roll in.  Now, when the results are less than stellar, we hide from it like the plague.  As you can imagine, my skepticism was not taken well (in fact, in less than a month I would find myself looking for another job).

The real answer was not that we refused to share because of some legal issue, but rather that our results are so bad that if we want to sell a franchise we can’t have that level of transparency.  When I suggested that we take our focus off franchise sales and put it in to fixing our business so that we have healthy franchises, I was met with similar disgust, and likely put the first nail in the coffin of my franchise sales job.

So what do you think, was I wrong to question the lack of disclosure?  We weren’t obligated to provide the information.  According to the FTC franchise rule, we are allowed to, but not required to share financial data from our franchises.  If we choose not to, current franchisees are the only real source for that data.  What is a franchise seller supposed to do in that situation?  There is obviously some hope that the business will turn around or it would have closed up shop during the recession like so many others.  Someone has to fight to keep the company in business – I guess my idea of “fight” was to be open about the results with prospects and let the chips fall as they may while we focus our resources internally on creating a model that works.  Others thought the way to go was to sell our way out by replacing the poor performing franchisees with new blood in the hopes that someone with a fresh eye on the business could turn it around.

It’s a tough call and I’d love to hear some feedback on how others have dealt with similar situations or how I might have handled it differently and still kept my integrity.

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