Franchisee Legislation & Advocacy

November 30th, 2021 – Submitted to the FTC and Legislative Directors

Good day,

I am Kim Perrotta, residing in the state of Florida, having been involved in franchising throughout my 30+ year career with intentions to discuss Franchisee Legislation & Advocacy.

Currently, a Franchisee Advocate and Advisor (often referred to as franchise consultant, coach, broker, etc.) in an attempt to assist prospective Franchisees to avoid the multiple egregious pitfalls associated with franchising and the law that regulates them.

My web site pages can be seen at https://www.worldwisefranchise.com as well as more information relative to my background.

I am also an associate member of the AAFD (The American Association of Franchisees and Dealers) as well as a SCORE Certified Mentor in association with the SBA.

Franchise Regulation

To be clear I believe that “regulation” of the franchising space is entirely over-rated and incredibly one sided on behalf of franchisors.

While the franchise rule in 2007 was a start the franchise space has undergone significant changes since and regulation, guidance, and new legislation are an imperative if franchising is to be cleaned up.

In fact, I’m of the firm opinion that franchising isn’t actually regulated at all with few exceptions regardless of previous efforts.

Powerful Lobby – One Sided

Often, any possibility for change is thwarted by the very “powerful” International Franchise Association (IFA) that will send in lawyers by parachute to oppose any prospects of enhancing franchise law and governance on behalf of Franchisees.

Why is it that the “SBA Franchise Loan Transparency Act” had to be re-introduced?  Is it not a key piece of information for prospective Franchisees to have concerning loan defaults and failed franchises?  A rhetorical question of course.

Strategies to Improve the Franchise Model

I wish to associate myself with the the report and proposed legislation by United State Senator The Honorable Senator Catherine Cortez Masto and her efforts concerning franchising.

The changes referred to are contained in the report “Strategies to Improve the Franchise Model: Preventing Unfair and Deceptive Franchise Practices,” and all it contains.

Having been on both sides of the franchise relationship as Franchisee and franchisor the imbalance in franchising as it relates to Franchisees can no longer be allowed to exist.

An associate of mine, Mr. Keith Miller, has emphasized transparency and documentation as vitally important to be reviewed by prospective Franchisees as part of their due diligence process.  I concur.

Financial Information – FPR’s

Financial information, particularly that of emerging franchises, is so incredibly important that Financial Performance Representations must be made part of Franchise Disclosure Documents to the extent it exists.

When in fact it does not there should be a comment and warning concerning the considerable risk associated with a franchise that excludes this information.

In many instances, franchisors are using franchise savvy attorneys to craft and mold FPR’s in such a way that they appear far better than they actually are.  Not in ALL instances but in more than there should be.

This is also true with franchise opening forecasts, pipeline projections, and franchise turnover, often called franchise churn.

Prospective Franchisees are not “partners” nor are they “awarded” franchises.  Franchises are sold, period.

Prospective Franchisees are clearly “investors” and deserve the same treatment and information as would any investor gets similar to the Security and Exchange Commission rules.

Because these Prospective Franchisees are typically small business people who will commit life savings and utilize the ROBS program to leverage retirement funds it is that much MORE important that they be provided with as much information as possible before ultimately making a decision concerning a franchise.

The several points immediately established in Senator Catherine Cortez Masto’s report and its executive summary are clearly indicative of how the changes proposed must be made in order to provide the protection, oversight, and equality for Prospective Franchisees.

I don’t believe a better set of facts or commentary could be established.  The report is comprehensive in its content and approach.  It is high time that the continuation of its content be considered and moved forward.

Sales Person Licensing

On a personal note, I wish to add that those like myself who are considered “brokers, coaches, consultants, gurus, and advisors” should be licensed and regulated as part of the sales process for franchises.

Not unlike Real Estate Agents, Business Brokers, Sellers of Securities, and the like categories of those along the franchise sale curve, they should be made part of any FDD, should be licensed and regulated, and held accountable just as a franchisor would be if providing misinformation.

There are many honest and trustworthy individuals making a living doing this but undoubtedly the franchise space includes those that violate ethical norms as what in the end are simply franchise sales people regardless of their titles or the way in which they present themselves.

Additional Opinion

Last, for the purpose of additional information concerning my positions and advocacy I would direct you to my blog located at https://worldwisefranchise.com/blog-world-wise-franchise-development/ where over time I have expressed many opinions, along with my own evolution in finding my voice, relative to franchising.

With Thanks

I would like to sincerely thank the Honorable Senator Catherine Cortez Masto and all who have participated in the report, its compilation, and support of the proposals contained therein.

Given my perspective on franchising I would request that this letter be included in comments and any other place or location where you might find it useful.

Sincerest regards,

Kim G. Perrotta

(Edited for Blog Post)