The organizers of the Franchise Business Network meeting would like to extend our most sincere THANK YOU to the hosts, sponsors, speakers and attendees that made this year’s event a tremendous success. A tremendous amount of knowledge was shared and we hope everyone went home excited about what the future holds. We welcome any feedback to make the event better and hope to see you again next year.
FRANCHISE BUSINESS NETWORK MEETING 2018
The Fault in Our Franchise Stars: Understanding Challenges and Opportunities in the Franchise Universe
Featuring discussions on:
- Artificial Intelligence
- Data Analytics
- Revenue Recognition
- Servicing the Cannabis Industry
- International Markets
Distinguished speakers & panel guests including:
- Wy Livingston, Managing Member, Joint Venture Flavors
- Jeff Johnson, Founder & CEO, Franchise Research Institute
- Ken Tyra, CEO, Alexius
July 16 @ The Denver Country Club
1700 E 1st Ave, Denver, CO 80218
July 16 @ The Seasons – Cherry Creek
3489 East Ellsworth Ave, Denver, CO 80209
4:30-6:30 Networking Reception
July 17 @ Denver Country Club
1700 E 1st Ave, Denver, CO 80218
7:30-8:15 Check-in and Continental Breakfast
11:45-1:30 Keynote and Lunch
Home of Kevin and Patty Hein
1533 East 7th Avenue, Denver
5:00-6:00 VIP Cocktail Party and Networking
Franchise Business Network Summer Event
An Evening With the Stars
Featuring Emily Tyra
Emily is an accomplished theater and television actress, singer and dancer.
She is currently a series regular on CBS’s Code Black.
6:00-6:45 Cocktails and Networking
6:45-7:30 Dinner Buffet
7:30-9:00 Dessert and Entertainment
At the Home of Kevin & Patti Hein
1533 East 7th Ave, Denver, CO 80206
Franchise Business Network Attendees, Presenters and Sponsors
I wanted to thank everyone who attended the 2017 Franchise Business Network summer program and dinner. We had approximately 90 people in attendance throughout the day and the reviews thus far have been outstanding. The event would not have been possible if were not for the world-class line-up of presenters, and the incredible collection of sponsors that graciously provided their support.
Mike Maciszewski, Vice President, Alexius
Elior Shiloh, Partner, Lewis Brisbois
Jennifer Wisniewski, Vice President, Alexius
Diana Meade, CEO, OnePoint BPO
Ed Schenkein, Partner, Singer Lewak
Andy Elson, Chief Client Services Officer, Alexius
Gary Schlisner, CFO, InteliSecure
Jay Kramer, Partner, Lewis Brisbois
Greg Caldwell, Founder, Armadentity and Armadentity SecureFranchise
Fred Holt, Founder/CEO, Summit HR Solutions
Tom Stone (moderator)
Michael Feinner, CEO, MSF Enterprises, Inc.
Carolyn Miller, Founder, National Franchise Institute
Jodi Holloway, CEO/Strategist, DYZN Solutions
Reg Byrd, Partner, DCV Franchise Group
Chris Myers, CEO, BodeTree
Trish Barrett, Legal Consultant, Alexius, LLC
Amy Holman, Director of Legal Affairs, Modern Acupuncture
Melanie Hanson, General Counsel, Massage Envy
Elizabeth Nolan, Legal Advisor, Citywide Franchising
I would also like to thank everyone who attended the reception and dinner at my house later that evening. Three Tomatoes Catering did out outstanding job with the food and free-flowing libations seam to be a good indication that everyone was enjoying the evening.
Look forward to seeing everyone again next year.
Kevin Hein, Chief Development and Strategy Officer, Alexius
Saturday, July 22nd Alexius was proud to host Labor Secretary Alexander Acosta on behalf of the IFA for a informal discussion on some of the major labor related issues US franchise organizations are having to face in today’s political climate. In attendance were representatives of some of Colorado’s leading franchisors, franchisees and small business organizations, resulting in a fruitful exchange of ideas and concerns.
About Rene Alexander Acosta: (born January 16, 1969) is an American attorney, academic, and politician who is the 27th and current United States Secretary of Labor. A Republican, he was appointed by President George W. Bush to the National Labor Relations Board and later served as Assistant Attorney General for Civil Rights and federal prosecutor for the Southern District of Florida. On February 16, 2017, President Donald Trumpnominated Acosta to be United States Secretary of Labor. Acosta is the first Hispanic member of Trump’s cabinet. He is the former dean of Florida International University College of Law.
Franchise Business Network Meeting
July 18, 2017 Denver Country Club
“And the Hits Just Keep on Coming . . . Managing Franchise Systems in Times of Great Change”
The franchise business model is under pressure from changing laws and new challenges – but franchise leaders have opportunities to rise to the challenge. During this event, industry leaders will discuss hazards to the franchise business model, hot topics such as transactions and data privacy, and how leaders can effect positive shifts through collaborative leadership and system change.
In the evening, we will unwind and visit with colleagues and peers while enjoying cocktails, fine wines, a French-themed dinner and entertainment at a party celebrating the best of franchising and our Colorado-based franchise community.
8:00 to 8:45 Check in and continental breakfast
8:45 to 9:00 Welcome and Introduction
Kevin Hein, Chief Development and Strategy Officer, Alexius
9:00 to 9:45 My Way (Frank Sinatra, 1969)
Recognition of Deal Maker of the Year in Colorado
Mike Maciszewski, Vice President, Alexius
9:45 to 10:30 Jailhouse Rock (Elvis Presley, 1957)
A Summary Review of Key Franchise Cases During the Past Year
Elior Shiloh, Partner, Lewis Brisbois
10:30 to 10:45 Break
10:45 to 11:30 Building the Perfect Beast (Don Henley, 1984)
Changes in Revenue Recognition Rules and Constructing Financial Performance Representations Under the New NASAA Guidelines
Jennifer Wisniewski, Vice President, Alexius, Diana Meade, CEO, OnePoint BPO, Ed Schenkein, Partner, Singer Lewak
11:30 to 12:15 Won’t Get Fooled Again (The Who, 1971)
Understanding and managing cybersecurity issues in a dangerous world
Andy Elson, Chief Client Services Officer, Alexius. Gary Schlisner, CFO, InteliSecure. Jay Kramer, Partner, Lewis Brisbois, Greg Caldwell, Founder, Armadentity and Armadentity SecureFranchise
12:15 to 1:30 Lunch and Keynote
The Five Behaviors of the Cohesive Team
Fred Holt, Founder/CEO, Summit HR Solutions
1:30 to 1:45 Break
1:45 to 2:30 Changes In Latitudes, Changes in Attitudes (Jimmy Buffett, 1977)
Coaching Through System Change
Tom Stone (moderator), Michael Feinner, CEO, MSF Enterprises, Inc., Carolyn Miller, Founder, National Franchise Institute, Jodi Holloway, CEO/Strategist, DYZN Solutions
2:30 to 3:15 Money (Pink Floyd, 1973)
Franchisee Financing – New Rules and Access to Capital
Reg Byrd, Partner, DCV Franchise Group, Chris Myers, CEO, BodeTree
3:15 to 3:30 Break
3:30 to 4:30 Under Pressure (Queen and David Bowie, 1981)
Panel of the Pros – Keys to Managing Legal Risk Using Internal and External Resources
Trish Barrett, Legal Consultant, Alexius, LLC., Amy Holman, Director of Legal Affairs, Modern Acupuncture, Melanie Hanson, General Counsel, Massage Envy, Elizabeth Nolan, Legal Advisor, Citywide Franchising
4:30 to 4:45 Conclusion and wrap up
Competition for corporate legal work is keen. Law firms vie with each other for a shrinking segment of outsourced legal work. Corporate legal departments and a growing array of well capitalized, tech and process savvy service providers now account for an almost 50% of legal spend. It’s not surprising, then, that law firms are stepping up investment in marketing and business development activities. Will this narrow the growing delta between rising demand for legal services and declining call for law firms? Short answer: not unless law firms address the myriad of reasons for client dissatisfaction as well as differentiate themselves.
A joint study conducted by the Legal Marketing Association (LMA) and Bloomberg Law found that more than two-thirds of attorneys and business development professionals agree their firm is increasing its emphasis on marketing and business development– only 6% disagree. Nearly half of those surveyed report their marketing budgets will increase more than 10% over the next two years, even as firms continue to engage in belt synching to prop up profit-per-partner (PPP).
The primary reasons firms cited for expanding marketing budgets relate to internal pressure to generate revenue, law firm convergence-fewer outside firms used by clients, and keeping pace with other firms that are hiking marketing spend. But jacking up marketing and sales spend will only yield a positive return on investment for firms if they: (1) tackle client dissatisfaction; and (2) differentiate themselves. These will be the linchpins of success.
‘What We’ve Got Here Is Failure To Communicate’
A recent study of the British legal market commissioned by LexisNexis and Judge Business School at Cambridge University contains a stark finding: ‘There is unambiguous evidence of a significant and persistent disconnect between law firms and their clients.’ The disconnect has resulted in a steady migration of work from firms to corporate legal departments as well as a growing client receptivity to service providers and other non-traditional sources for legal services.
The LexisNexis survey cites three persistent causes of the client/firm disconnect: (1) clients want solutions and law firms offer advice; (2) law firms strive for perfection while clients generally want a ‘good enough’ basis to solve a problem–this varies with the value a client assigns to a matter; and (3) law firms fail to provide cost and time predictability–they have not invested in project and process management capability that is common among their clients (and, more recently, in-house legal departments).
The divide between clients and firms is more profound than firm delivery and pricing deficiencies; it also involves a knowledge gap. A stunning 40% of clients in the LexisNexis survey noted that senior partners of their law firms lacked more than a basic knowledge of their businesses. No wonder there is convergence and a willingness to look beyond incumbent firms. Add to that client dissatisfaction with firm cost, incremental delivery improvement, and law firms’ failure to take an enterprise approach to client matters rather than a transactional one, and you’ve got quite a list of client gripes. The consequences are starting to become noticeable. It’s not just a buyer’s market–it’s also one where buyers are not satisfied by what most law firms are selling. And clients are voting with their feet.
The Law Firm Herd Mentality
Law firms have a herd mentality in an age where differentiation and customer satisfaction is paramount. Take for example Cravath’s announcement last year that it was raising associate salaries. The timing was curious since clients were already in open rebellion about excessive law firm bills and fees. Cravath could get away with the pay hike because it is one of about twenty brand-differentiated firms that work on high-value matters where legal fees are inconsequential (read: they can afford it and they really are separated from the herd). But that did not stop about one hundred other large firms from quickly matching—or exceeding—the Cravath benchmark.
And so it is with marketing budgets—many firms are substantially upping them because ‘other firms are doing it.’ But what exactly are firms marketing? What’s the message and how is it really different from a raft of other firms? If you look at a random sampling of large law firm websites you will see common language—‘we partner with our clients;’ ‘we are value driven;’ ‘we have assembled top talent that handle some of the most complex matters;’ and so on. What’s conspicuously absent is any evidence of differentiation—as to expertise, results, efficient use of technology, process/project management, client service, knowledge of clients’ businesses, fee flexibility, etc. Also absent is reference to customer satisfaction and data to back it up. Most firms believe they provide outstanding service. The 2015 Lexis Nexis Bellweather Report highlighted another perception gap between firms and clients– 80% of lawyers responded they’re good at client service while only 40% of clients said they received good service from their lawyers.
Differentiation Requires Soul Searching
Most large firms are undifferentiated. Many engage in the same practice areas; have offices in similar locations around the country or around the globe; have comparable salaries and billing quotas; and have grown through mergers/acquisitions and lack integrated IT systems and cultures. Generally, each firm has one or two departments (practice areas) upon which its reputation is staked and a couple of ‘superstar’ lawyers. For a long time, firms sustained themselves by relationships with particular clients. That still exists, of course, but only so long as results are delivered. That’s why clients, like partners, are peripatetic as never before. Clients are demanding value and efficiency– two outputs the traditional law firm partnership model was not constructed to produce.
Which brings us to that long, hard look in the mirror firms would be wise to take. The question they should ask themselves is: ‘What is it that makes our firm distinct from others, and what services, products, and processes do we offer that cannot be obtained from other sources providing a comparable level of service, results, customer satisfaction, consistency, and value?’ The days of large firms being all things to all clients in all geographies are over.
One of the legal marketplace’s many ironies is that so many firms have joined the ‘bigger is better’ stampede when, in fact, clients want a more specialized, agile, integrated, and process driven legal service provider that excels at what it does and produces consistent, measurable, efficient, and effective business solutions . This is not to say there is not a place for a firm that is bigger and addresses the client concerns exposed by LexisNexis and a slew of other surveys. Of course there is. That is difficult to achieve, however, by a patchwork of acquisitions unaccompanied by integration of technologies, culture, and a slew of other client centric capabilities. To be effective—differentiated—scaled legal providers must have expertise across geographies; integrated IT platforms; the ability to service clients on an enterprise basis; and operate as an extension of the client’s internal as well as outsourced resources. That’s a rarified version of ‘bigger is better’ that most large law firms bear little resemblance to.
Law firms are smart to increase marketing and business development budgets. That investment should start with a frank assessment of how the firm identifies itself in the marketplace and how—if at all–it is differentiated from its peer group. That assessment should be shared with clients and the broader marketplace to prevent a perception gap. There’s little to market if firms don’t confront the causes of client dissatisfaction and demonstrate a commitment to rectify them. That’s the most effective marketing of all.
The legal profession has a dismal record on diversity—especially large law firms. Between 2007 and 2015, there was a decline in the number of black attorneys in big firms. And, per the same study conducted by the Minority Corporate Counsel Association and Vault.com, the number of Asian-American lawyers receiving promotions in 2014 was less than in 2007.
Women, who now comprise about half of the entering US law school population, have fared only slightly better. While the gap in pay disparity between female and male attorneys has narrowed during the past decade, the playing field is not level for them, either. Female attorneys still make only 87% of their male counterparts, and women comprise only 20% of partners at large firms according to ‘The Glass Slipper Report.’ Just 4% of large firms have female managing partners. Why are law firms so behind the societal curve?
Firm Structure And Culture Are Inimical To Diversity
Large law firms share a common organizational structure and performance/reward system. The traditional law firm partnership model is decentralized; each equity partner is a separate profit center—a tent in the bazaar. That militates against adoption of broad initiatives, especially those that disrupt the status quo. The law firm performance/reward system is tipped heavily in favor of business origination, and rainmakers—especially older ones–have no financial incentive to build for the future of the firm. The absence of residual ‘equity’ (as opposed to law firm partner profit sharing mistakenly referred to as ‘equity’) has been one reason why law firms have been so slow to adopt change that threatens its model. Those at the top of the pyramid are running the table, not worrying about the next rack. And while diversity and other shifts in firm culture are no doubt good long-term, firms are disinclined to undertake initiatives they view as dilutive of year-end profit (PPP). Diversity is a long-term investment, and the traditional partnership model is a short-term for all but a handful of elite firms.
True, many firms have launched diversity initiatives. But diversity—like other cultural commitments– is more than a policy to hire candidates from different backgrounds, ethnicities, genders, and sexual preferences. Diversity requires an ongoing organizational resolve to identify high-potential diverse candidates; to provide them with mentorship; to encourage and enable them to acquire a sound understanding of the client’s business, objectives, and risk tolerance; provide them client interaction; and meaningful periodic review intended to drive the individual’s success within and outside the organization. Mentorship takes time and commitment—from mentor and mentee. Bottom line: don’t expect traditional partnership model law firms to become diverse institutions any time soon.
Corporate Legal Departments Reflect Enterprise Commitment To Diversity
Corporations understand that diversity pays many dividends. Corporate legal departments, in turn, have adopted the enterprise commitment to diversity, and that’s a big reason why diversity candidates fare better in large corporate legal departments than in law firms. The delta can be explained by two key differences: (1) enterprise culture; and (2) performance/reward criteria. Corporate America sees the long-term benefits of diversity; law firm leaders tend to take a short-term view due to firm structure. Likewise, in-house lawyers are incentivized to identify, mentor, and promote young talent. Law firm partners—especially older ones—have little incentive to do so. That’s changing because corporate legal departments are insisting outside counsel get serious about diversity.
Diversity In A Buyers’ Market: In-House Counsel Are Pushing Firms
The legal industry is a buyers’ market, and corporate legal departments are exerting leverage on law firms beyond taking more work in-house, exacting steep discounts, and sourcing more work to well-capitalized, tech and process savvy legal service providers with corporate models that more closely resemble their own. They are also insisting that law firms deploy a diverse workforce for their matters. That’s taking on different forms.
Microsoft has adopted a ‘carrot’ approach, offering annual bonuses to its outside law firms intended to increase diversity in partnership and firm leadership roles. Hewlett-Packard (HP) takes a ‘stick’ approach to the diversity issue with its outside law firms. Kim Rivera, HP’s chief legal officer, recently announced the company’s new get-tough-on –diversity policy that applies to all US-based law firms with 10 lawyers or more retained by HP. After a one-year phase-in period, HP will impose up to a 10% hold back of firm fees if certain firm diversity requirements are not met. To comply, firms must have at least one diverse firm relationship partner regularly engaged on billing and staffing issues or at least one woman and one racially/ethnically diverse attorney, each performing or managing at least 10% of hours billed to HP.
MetLife is about to unveil a new diversity initiative with outside counsel, one the corporate legal department has spent the last few years developing internally. MetLife’s ‘Talent Stewardship Initiative’ is largely the creation of Ricardo Anzaldua, the company’s Executive Vice President and General Counsel. Ricardo’s commitment to diversity runs deep, dating from his teenage years in South Texas. During the course of his illustrious legal career, he has rued—and sought to rectify—the legal profession’s lamentable record on diversity. It’s little surprise that he’s a good fit at MetLife, a company where diversity, in his words, “is a part of how we do business.” He has built on that corporate culture by creating the stewardship program—part of a larger, multi-pronged approach to the diversity issue.
The Talent Stewardship Initiative creates sponsor relationships where senior leaders are accountable for providing experience, exposure, training, and leadership guidance to employees with potential for advancement. The program is intended to identify and nurture the professional development of promising young lawyers and compliance professionals, pairing them with senior management who ‘have been in their shoes’—and succeeded providing hands-on guidance. Both sides are vested in the other’s success. Selected participants have no guarantee of staying in the program—they must demonstrate a commitment to succeed with demonstrable results. Their ‘stewards,’ likewise, have ‘leadership skills’ as part of their job description, and their success in the program is one way their leadership is measured. The program is a long-term commitment to the success of the enterprise and an outstanding succession planning tool. It is also has a salutary impact on the legal profession, ensuring that the next generation has more diverse leadership.
At a time when public confidence in lawyers and the legal system has ebbed, a more diverse legal profession is not just an aspiration but also a necessity. It’s unlikely that change will come from law firms—it seldom does. The best hope for a more vibrant, diverse legal industry is that legal consumers like MetLife lead by example—and leverage–to change the industry’s cultural stasis. That will open the leadership doors to a wider pool of worthy candidates better equipped to restore public confidence in lawyers and faith in the legal system.
The legal industry is known for adherence to precedent, not innovation. While precedent remains a guiding principle in the practice of law, innovation is transforming the models, methods, and players involved in the buy/sell process of legal services. Technology, process, access to institutional capital, re-reregulation, client demand for enhanced value, and changes in other professional service industry delivery models—notably medicine and accounting– are legal innovation’s principal drivers.
Legal innovation has lagged compared with other industries. Law’s Uber has yet to pull up to the curb. But that does not mean that the breadth, scope, and pace of legal delivery innovation has not picked up in recent years. Consider, for example, that in-house corporate departments and legal service providers (read: legal providers that do not ‘engage in the practice of law’ but deliver ‘legal services’) now account for nearly half of total legal spend. The rapid growth of these new supply sources—and their tech and process savvy delivery capability and corporate structures that are better aligned with client standard operating procedure—is a paradigmatic shift away from the long-dominant law firm partnership model. So while no dominant provider has emerged to replace traditional law firms, it’s clear that the search for new delivery models is well underway and yielding an ever-expanding array of client options.
BigLaw partners still rake in princely sums, and entry-level lawyers at their firms earn a lavish lunch less than $200K, but that hardly supports the case that the traditional law firm model is alive and well. Consider the shift in buying practices among corporate clients and the delta between overall legal demand and flat demand for law firm services during the past five years. Then note the shrinking number of equity partners, the smaller classes of incoming associates and the overall declining percentage that large firm lawyers represent in the overall legal population. This is the fallout from changing customer expectations and their internal steps—as well as the growth of well-funded providers—to fill the void being created by buyer migration from the traditional law firm partnership model.
Let’s consider for a moment ‘disruptive innovation,’ the oft-misapplied term coined by Clayton Christensen to describe a paradigmatic industry shift. Professor Christensen’s theory posits that change takes hold in the lower end of a market, introducing new customers into the marketplace by creating ease of access, lower cost, and greater efficiency. That’s precisely what is happening in the retail segment of the legal industry.
LegalZoom, a legal technology company that now has over 3 million customers—and sky-high approval ratings– is successfully using technology to improve access, promote efficiency, and reduce the cost of legal services. They are also bringing new customers into the market. The company is also creating a template for how, when, and for what service level lawyers are required for different tasks and functions. LegalZoom is pioneering levels of lawyer touch-point determined by the value assigned by the customer, not the provider. This ranges from self-serve (standardized documents); to limited access (short online chats with lawyers or calls on a fixed fee basis); to full-blown engagements (with approved panel counsel). This approach is a paradigm shift worthy of the ‘disruptive innovation’ moniker. More importantly, it is one that will migrate to more complex matters in the corporate segment of the legal market. The question will be: who and what is the appropriate resource to deploy for a specific task—or matter– based upon its value to the client?
Corporate clients are already engaged in this process—a paradigm shift—in a number of ways: (1) an increasing willingness to procure services from providers with delivery models different than the traditional law firm partnership model; (2) taking more work in-house; (3) sourcing work—either internally or externally—to providers that are better aligned than law firms with the company’s risk tolerance and enterprise objectives; (4) utilizing technology, process, and ‘the right person for the right task’ to promote efficiency, mitigate risk, and reduce cost; and (5) rejecting the longstanding myth that only law firms—and lawyers—must perform all ‘legal’ tasks. Legal problems are increasingly viewed as business challenges raising legal issues.
Why have law firms not taken more aggressive steps to protect their once-dominant market dominance? There are several reasons: (1) there was little need to innovate until the global financial crisis of 2008 changed the way business is conducted—even law; (2) law firm senior partners lack the financial incentive to invest in the firm’s future because their ‘equity’ is not residual; (3) law firms were able to prop up profits by internal cost-cutting measures rather than client-centric innovation—no more; (4) law firms were able to prop up profits by internal cost-cutting measures rather than client-centric innovation—no more; (5) firms lack the investment capital to make long-term investments in innovation and there is a generational/economic divide between older and younger partners; (6) rather than innovate, firms have tried to ‘reinvent’ their brands by merger. This is neither innovation nor is it a generally a winning formula based upon a recent study conducted by ALM Intelligence
Law’s Uber moment has yet to occur, but there is a wealth of evidence that innovation is driving change—in the buy/sell dynamic; in client expectations; in the more widespread and effective deployment of technology and process in legal delivery; in the tasks that lawyers perform and for whom they are employed/managed; in the price sensitivity for all but the highest-value tasks and matters; and for the melding of legal, technological, process, and collaborative skills required to deliver legal services. And while a handful of law firms—Seyfarth and Allen&Overy are two prominent examples—are traditional model outliers that have engaged in real innovation in service delivery, the bulk of the innovation has come from corporate legal departments and elite legal service providers. Is it any wonder, then, that these two groups now account for almost half of total legal spend?
Big money is eying—and investing in– the legal vertical because of its immense size and disruption potential. Legal technology companies are proliferating; artificial intelligence is already part of the legal landscape—just last week a UK insurance company teamed with an ABS legal service provider to role out an AI-powered app to answer coverage questions for policyholders; and global legal service providers like Axiom and UnitedLex, among others, have global footprints and nine-figure revenues. Most importantly, consumers are embracing delivery options different than the traditional partnership model. This will stoke the innovation fire already ablaze in the legal industry.
The pace of innovation in legal delivery will continue to accelerate during the next few years. And while many envision disruption in binary terms–law firm vs. service provider; AI vs. lawyer; insource vs. outsource—it’s more nuanced than that. Disruption in legal delivery will not be a ‘one-size-fits-all’ approach. Clients assign different values to different tasks, functions, matters, and portfolios. Value is derived from context. For example, a product liability case is nuisance value if it’s a one-off but high value if it could give rise to a multiplicity of similar actions.
The value of a matter drives the election of resources most appropriate to meeting the client’s objective. The disruptive legal delivery model will be one that provides a scalable array of solution tools—human and technological; legal and business; embedded and agile– that produce efficient, cost-effective, and risk-appropriate resolutions to client challenges. That’s precisely what top lawyers have always delivered and it will be the winning formula going forward.
This post was originally published on Forbes.com.
Alexius forms franchise financing affiliate, Frescoe
Alexius, LLC, a Denver-based managed legal services company which serves numerous brands within the franchise community, is pleased to announce the formation of its affiliate, Frescoe, LLC (“Frescoe”).
Frescoe will provide two unique services to the franchise community: (1) it will facilitate the creation and management of impound accounts for franchisors requiring some form of financial assurance in order to secure franchise registration in the states of California, Illinois, Maryland, Minnesota, New York, Virginia, and Washington; and (2) it will provide competitively priced escrow services for franchise companies engaged in the sale or acquisition of company-owned stores and other mergers and acquisitions activity.
Each of the aforementioned registration states can require franchisors to deposit all initial franchise fees due to the franchisor into a restricted account in a bank located in that particular registration state. The funds from these accounts cannot be released until the franchisor has substantially completed all of its pre-opening obligations and the franchisee is ready to open for business.
Despite the restricted nature of these accounts, impound accounts are advantageous to the franchisor and its franchisees. For the franchisor, this approach ensures that the funds from the initial franchise fees are immediately available to the franchisor when the franchisee is ready to open for business. At the same time, this approach benefits franchisees by preventing undercapitalized franchisors from having the ability to unwisely spend the franchisees’ initial franchise fees before they have provided their franchisees with all of the initial services they require to successfully open and operate their franchises.
Frescoe has priced its services in a manner that will make opening these accounts more affordable than securing a performance bond or working directly with the escrow department of a bank in these registration states. Furthermore, the fee paid to open and manage an impound account will be minimal in comparison to the risks incurred by a franchisor who chooses to defer collection of the initial franchise fee and hopes that the franchisee will still be able to pay the initial franchise fee when it opens for business.
“We have watched our clients struggle for years with financial assurance requirements,” said Frescoe’s President, Kevin Hein. “First, many small and emerging franchisors do not have access to additional capital or affiliated entities that can provide guarantees. Second, performance bonds can cost many thousands of dollars on an annual basis, must be paid for in full as a condition of registration (even if the franchisor has no actual franchise prospects in the given state), and are often not available in some of these states. Third, when a franchisors choose to defer initial franchise fees and other start-up fees, they often find that the money to pay these fees is no longer available when the franchisees are ready to open the location for business. For these reasons, we are pleased to be able to offer a reasonably priced solution that provides the ultimate in security for the franchisor and its franchisees in these states.”
As of the date of this press release, Frescoe has secured a banking relationship in California and is now offering impound services in California. Frescoe’s management team anticipates the company will be able to offer impound services in the remaining six aforementioned registration states by the end of the first quarter in 2018.