Managing the Seasonal Franchise

Both service and product related franchise systems and small businesses often have to navigate the seasonality of their business. As an owner of a seasonal business you are likely constantly facing the off-season revenue cliff and trying to figure out ways to keep the business stable during the off-season.

This post offers a few tips on helping you overcome the off-season revenue cliff that can help sustain your business year-round.

1.    Modify your labor costs to reflect the applicable revenue season.

As a rule of thumb, your labor costs should not exceed 20% - 30% of your revenue at any given time. As a seasonal business your labor costs need to adjust up and down depending on whether you are in the high or low season of your business. This means having fewer employees when you are bringing in less money. Decide which employees are necessary for operations and stick with that smaller scaled-down staff during the low season. 

1.    Try and modify your lease agreements.

Many landlords are willing to work with the seasonal business to allow for higher rents in the high season and lower rents in the low season. The landlord that understands the nature of your business and the flow of revenue during different times of the year is often more likely to work out a solution that will benefit both you and the landlord.

The same could be said of vehicle leases. If your seasonal business is reliant on company vehicles, work with your lender to come up with a viable solution to accommodate the flux in your revenue stream.

2.    Adjust inventory levels.

This seems common sense, but many seasonal businesses forget to adjust their inventory down during the low season. If you operate a year-round business that has a high and a low season, you will need to adjust what inventory and even what offerings are available during the low versus the high season. Take time during the low season to create different purchasing matrices that can be used during the different revenue seasons.

(helpful article by the National Food Service Management Institute) 

3.    Find new revenue streams.

This is not as easy as it sounds, but it is a worthwhile practice. As a seasonal business, you do have an advantage in being able to take time to evaluate your business and to streamline the offerings and decide if adjustments in low season offerings can and/or need to be made. Use this time to plan ahead for how to attract new business and customers during the peak season and how to maximize your profits once the high season hits.

This can also mean trying to diversify what you offer your customers. Examine your business and decide if your offering easily crosses into an off-season offering. This is often easier for certain industries. For example, it is more logical for a landscaping business to cross into the snow removal business than for an ice cream establishment to cross into another industry. Be creative. There may be something your business can succeed at with little cost or effort during the low season to help sustain the business and keep the revenue flow moving in a positive direction.

There are several other helpful articles available to the small business owner. Speak to others in the industry and take time to analyze your business. You may be able to save on costs or create new revenue streams in ways you had not previously thought possible.

  

Annual Franchise Renewals

If you are a franchisor, you are (or need to be) aware that it is, for most franchise systems, franchise renewal season. It is that time of the year when you are required to update your FDD with any material changes and to include a new audit for 2012. It is important to note that for most franchise systems, if you do not update your FDD you will be unable to offer or sell franchises after April 30, 2013, and as early as March 31, 2013 in some registration states.

This post is meant to give some helpful tips on preparing for this hectic time of the year.

·         Order your audit early –as in today. In reality, we recommend that your audit be ordered no later than January 31, 2013. This is because audits can take time and you will not have a completely updated FDD without an audit.

·         Between now and early February, sit down with your sales team and/or those overseeing the franchise system to discuss what material changes you would like or need to make to the FDD and franchise agreement. This can be anything from a change in royalties to how training is conducted. If you have found that you are continuously waiving a “requirement” with each new franchisee, you will want to talk to your franchise attorney about whether or not that should be a material change. A good place to start is with your Items 5, 6 and 7 and make sure that all the amounts stated are still true and accurate.

·         Take time to accurately fill out Item 20. This is often left to the last minute, but the 5 required tables are important and should accurately reflect the status of the franchise system.

·         Review any ancillary agreements you require your franchisees to sign. According to the FTC Amended Rule, “franchisors are required to attach a copy of all proposed agreements relating to the franchise offering that the franchisor provides or for which the franchisor makes arrangements.” This can include a required lease agreement form, ADA Certification, Personal Guarantees, Confidentiality Agreements, ACH Agreements, and many others. You will want to discuss with your franchise attorney all the agreements you require or provide for your franchisees to determine if they are required to be included in the FDD.

The renewal process can be long and arduous. But if you follow the above tips and take the time early on, the process can be smoother and you will be able to offer and sell without any delay.

Several registration states offer guides and tips in helping you through the annual renewal process.

The California Department of Corporations 
The State of Indiana
The State of Virginia (franchise forms)

New Year Checklist for Your Business

Setting resolutions and goals are a big part of each new year. While this is a common practice among individuals, it is often overlooked when it comes to businesses and assessing what needs to be done in the coming year for your business’ overall health. Below is a short checklist for the small business and the franchisor business that can help you make sure that your business is adequately set up for 2013.

·         Do you have a Buy-Sell Agreement in place among your partners? If not, this should be a priority.

·         Update and review your Employment Agreement(s).

·         Update (if necessary) your Bylaws or Operating Agreement to reflect any changes from 2012 and make the appropriate changes with the government agency regulating entities.

·         Make sure your trademark filings are up-to-date and appropriate renewals have been filed.

·         Double check on your UCC-1 filings either you have filed against someone or that someone has filed against you. For your filings you want to make sure you have not let them lapse or expire.

·         Update or create your will or other estate plan.

If you are a franchisor, you want to be especially careful that over the next couple of months you are making sure that you follow a schedule to ensure timely registration and renewal of your franchise.

·         Order your audit. In our experience this is the most common hold-up in the renewal and registration process each year. Ordering your audit early can help ensure that you can have timely renewals and registrations.

·         Sit down and review your system. Have you made any material changes or do you want to make any material changes to your system?

·         Set up a time to meet with your attorney to go over material changes in your system.

·         Have everything prepared and reviewed by March 20 so that you can submit your registrations and renewal filings on time. 

·         Make sure that you have all the documents from new franchisee purchases in 2012 (i.e. signed franchise agreement, certificates of insurance, dba filings, entity filings, etc.).

·         Set up a time to review sales restrictions and requirements with your franchise sales force.