New gTLD's and the Trademark Clearinghouse

In 2012, ICANN (Internet Corporation for Assigned Names and Numbers) announced that companies and individuals would be able to customize their top-level domain or “gTLD” (the part coming after the ‘dot’ in a domain name). This customization costs $185,000 per domain. In order to protect federal trademark owners from infringement, cybersquatting and other illegal acts by those seeking to obtain a customized gTLD, ICANN created the Trademark Clearinghouse (the “TMCH”).

Starting on March 26, 2013, federal trademark holders are able to register their trademarks with the TMCH. This registration will give the trademark owner protection from another user obtaining a customized top-level domain using their trademark (i.e. instead of just the .com, .net etc., the gTLD can be customized, such as .cocacola, .pepsi …).

The TMCH is limited trademarks that fall into one of three categories: 1) to those with federal trademark registration here in the United States, or the equivalent in another jurisdiction; 2) those who have had the mark validated by a court proceeding at the national level; or 3) those protected by statute or treaty. Both trademark owners and valid trademark licensees have the right to place a trademark on the TMCH.

However, as with anything, there are exceptions to the above rule, and the registration does not come without a price.

First the exceptions. Several trademarks, even though they meet one of the three above criteria, will not be eligible for registration with the TMCH. The main reasons creating ineligibility are: 1) the trademark contains a design element where the words are not the predominant part of the mark and where the words are not easily separable from the design; 2) the trademark contains a '.'  (dot); or 3) the trademark contains an unusable character in the name, such as & or other symbol. If any of the above apply to your mark, you will need to re-apply for federal trademark registration in the modified form.

The price tag is also a hurdle to overcome. For a one year registration, a trademark owner or licensee with an eligible trademark can file with the TMCH for $150. The three-year fee is $435 and the five-year fee is $725. This fee is per mark that is registered. If you file for what turns out to be an ineligible trademark, at this time the fee is not refunded. There are discounts offered for registrations done through Trademark Agents, but you will have to pay a fee to that agent.

If you are interested in registering, or learning more about customizable gTDL’s, you can visit the Trademark Clearinghouse website at: http://trademark-clearinghouse.com/, or the ICANN website at: http://newgtlds.icann.org/en/.

Franchise Programs for Veterans

As franchisors look to recruit new franchisees, one viable segment of the population is veterans transitioning out of active duty. The International Franchise Association (“IFA”) has established the VetFran program that links veterans with franchisors willing to offer discounts and incentives to veteran franchisees.

If you, as a franchisor, are interested in participating in the IFA’s VetFran program, you must be a member of IFA. All members of IFA are eligible to participate and there is no fee to be listed as part of the VetFran program. If you are already a member of IFA, you can sign up for the VetFran program by going to: http://dev.vetfran.com/franchisors/signup/.

While there are no fees directly associated with joining the VetFran program, there are requirements that a franchisor discount fees. Each franchisor must offer an incentive to veterans of no less than a 10% reduction on the initial franchise fee. Beyond that, there is no restriction as to what types of discounts and/or benefits are offered to incentivize veterans. Several franchisors eliminate the franchise fee entirely or offer a lowered royalty rate.

Once the franchisor is part of the program, the franchise system is listed in a directory of franchise opportunities. If you desire to have a more prominent listing, for an additional fee, a franchisor can have their franchise system featured prominently in the directory and in certain advertising. It should be noted that the VetFran website receives over 40,000 hits per year and the IFA is constantly working to establish relationship with national veterans programs and groups to bring this program to their attention.

The advantages to joining VetFran are several. The franchisor is able to use the VetFran logo on all promotional material and can use it on their letterhead and website which can be a helpful marketing tool to let the public understand the franchise system supports veterans. It is a minimal investment (through membership in IFA) to have access to a group of prospective franchisees that may otherwise not be as accessible. In addition, the franchisor can create a “calibration” assessment to help the VetFran program locate ideal franchisees. The assessment helps match a prospective franchisee’s skills and experience with a particular franchise opportunity. Lastly, VetFran is part of the Veteran Job Bank that allows veterans to search for veteran-friendly job opportunities upon transitioning out of service.

Once a part of VetFran, there is no prohibition against the franchisor making direct contact with veterans programs to promote the franchisor’s discount and veteran-specific offering. A franchisor is not restricted to using only the advertising made available through the VetFran program.

Should you desire more information about the VetFran program, you can find information on their website at: www.vetfran.com.

(This blog post is provided for informational purposes only and is not legal advice or an endorsement of any product, service, group, organization or program.)

Business and Franchise Tips

Over the past month, our office has gathered some basic information that relates to businesses and franchising, and more specifically to franchises in the restaurant industry. The basic information below is meant to help franchisors plan for the year and future growth and expenses. While some of the information has been taken from various publications and resources, some of the information is our opinion. The below is not legal advice or our promotion of any products or services and should not be construed as such.

1.    Bernstein Research in New York expects a 4% growth in restaurant sales in 2013—assuming the economy remains about where it is now.

   2.  OBAMACARE –the below are some statistics that are meant to help you understand the possible impact of the health care mandate.

a.    The Hudson Institute (for IFA) estimates the health care mandate will cost the franchise industry $6.4 billion dollars.

b.    McDonald’s estimates that it will cost $10,000 to $30,000 per store.

c.    Jack in the Box estimates the cost to be $10,000 per employee, but that the cost can be covered by a 1% increase in menu prices.

d.    Most sources and experts are recommending a price increase over cutting working hours, but that is in flux. Each franchise system needs to balance the fear of backlash relating to cutting working hours versus the fear of backlash relating to increased menu prices and/or loss of menu items.

e.    GE Capital believes the restaurant sector will ultimately weather this and will be able to cover the increase in costs through price increases alone. However, the amount of price increases and the public perception of an increase as the economy remains slow was not specifically addressed.

3  3.  CONSCIOUS CAPITALISM BY JOHN MACKEY

This book may be a helpful read to franchisors and business owners in all sectors. We have not read the book but several articles have referenced both John Mackey and his book in recent publications. John Mackey is the founder of Whole Foods. His basic theory is that the owners of a corporation should view the business as an opportunity to create value for the owners, employees and the communities where they do business. Value is defined in many different ways. In the long run a company that creates value will do far better because doing so changes the way the managers and other employees view what they are doing. However, it is important that the value created needs to become a central part of the corporate culture if this Whole Foods model is to succeed.  The book questions the traditional “profits and all costs” model as being often counterproductive and one that can readily create enemies.

4  4.  RULE OF THUMB FOR EQUITY CAPITAL –For Investors in a restaurant system

As a typical rule of thumb for restaurant acquisitions, the equity capital investor is looking for:

a.         $750 per square foot in sales;

b.         $300 per foot cost to build;

c.         18-20 percent unit level cash flow;

d.         Cash-on-cash return on investment of at least 40%

The above points and tips hopefully will help you in your business whether it is in creating growth, in creating a new corporate culture or in preparing your business for acquisition by another individual, company or investment firm. 

Preparing Your Business Tax Filings

We are well into tax filing season and small business owners have the added pressure of filing not just personal taxes, but business taxes as well. While we are not tax attorneys or tax specialists, we have gathered some useful tips over the years to help our small business clients better prepare for tax season and to help them with accurate filings.

1. Keep on top of important filing deadlines. Most of us know the looming April 15 “Tax Day” deadline for personal tax filings. However, you need to be aware that some business taxes and returns must be filed as early as mid-March. Talk to your accountant or tax specialist for more information on deadlines in your state and for your business.

2. Review your financial reports. Prior to submitting the information to your accountant or tax specialist, you will want to take a close look at your profit and loss statements and financial reports. Specifically, you want to review those areas of gross income that may trigger different taxes. Additionally, review your payroll taxes and make sure you or your payroll company are taking all the appropriate deductions.

3. Review your business receipts. Tracking receipts and keeping a filing system up to date is often difficult, but this is an area ripe for an audit. Look over your receipts and make sure they are properly noted to document the business expense, who you were with and what it was for, and scan the documents. A paperless receipt filing system is easier to retain and store than a file folder with hundreds of loose receipts.

4. Review elections and deductions with your accountant or tax specialist. Make sure you are properly itemizing your capital expenditures. Knowing the difference between what does and what does not qualify as a capital expense. Also, don’t forget to track all your available reimbursable expenses and to ensure that you are taking your available deductions, such as automobile deductions.

5. Give yourself plenty of time. If you have not already started preparing your business tax filings, do not put it off another day. There is a lot of work and preparation that goes into your business filings and you do not want to be left spending all day and night in the days before the filing deadline. Additionally, some tax professionals will charge a premium to prepare your business taxes in the days leading up to the filing deadlines. Preparing in advance can save you both in time and money.

6. Post-filing review. While it is nice to breathe that sigh of relief once the filings have been sent in, take some time to review what worked and what did not work in your tax preparation. Use the time to set up better filing and retention practices, to review whether your gross income is coming from the sources you thought it was (or should) be coming from. And take time to make sure that in the future, your tax preparation can be as seamless as possible.

Any U.S. federal tax advice contained in this communication (including any attachments or links) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Some helpful articles:

http://www.startupnation.com/business-articles/1169/1/AT_Tax-And-Bookkeeping-Mistakes.asp

http://www.nolo.com/legal-encyclopedia/top-tax-deductions-small-business-30176.html

http://www.squidoo.com/top-5-tax-tips-business-taxes-2013

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.