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IFA Insider, Volume 12, Issue No. 3, Monday January 29, 2007

On Jan. 23, the Federal Trade Commission announced that it had approved amendments to the Franchise Rule. IFA President Matthew Shay called the step a significant development for the entire franchising community. The phase-in period for the new rule will be July 1, 2007 to June 30, 2008. Between those dates, either the current or the new rule format will be accepted by the FTC; after the latter date, only the new disclosure format will be accepted. 

“This signals, for the first time, that franchise disclosure regulations promulgated in the 1970s are being retooled to address the environment in which franchise businesses operate in the 21st century,” Shay said. “There will be significant implications for franchisors in making the transition to the new format, but ultimately the new rule will be beneficial to both franchisors and franchise investors.” 

Shay said IFA will be reviewing the final amendments and providing additional guidance to association members as quickly as possible. In addition, IFA will soon announce the dates and locations of regional Legal Roundtable educational programs, to be conducted later this year, which will focus on the implications of the new rule. 

A primary goal in amending the rule, the FTC said, was to harmonize the federal rule with state franchise disclosure laws. The amendments also update the original rule to adapt to changes in the marketing of franchises and new technologies, reducing compliance costs where possible, and addressing complaints voiced by franchisees about their experience after signing an agreement and entering into a franchise relationship. 

The amendments more closely align the rule with state franchise disclosure laws, the agency said, which are based upon the UFOC Guidelines, developed and administered by the North American Securities Administrators Association. The original rule covered two distinct types of offerings: franchises and business opportunity ventures. The amended version separates the requirements applicable to franchises from those applicable to business opportunity ventures.

Copies are available at FTC’s Web site and also from the agency’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

Legislation has been filed in the Massachusetts Senate for the purpose of “franchisee protection.” Filed by Sen. Patricia Jehlen (D-Second Middlesex), SD 1981 has yet to be referred to any committees. The bill seeks to increase the state’s role in regulating franchise agreements in several ways.

First, the bill calls for prevention of agreement termination if a franchisee does not participate in promotional campaigns; meet sales quotas; refuses to sell products at the suggested price; does not comply with suggested hours of operation; or does not provide financial records to franchisor or supplier. Secondly, it prohibits the franchise company from restricting the right of free association by franchisees; restricting the transfer by will of any franchise and its rights; requires a change in management; imposing “unreasonable standards of performance;” failing to deal in “good faith” with a franchisee; or discriminating between franchises in charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or any other business dealing. Thirdly, it requires all franchise systems to “protect and save harmless its franchisee from financial loss and expense, including legal fees and costs, if any, arising out of any claim, demand, suit or judgment by reason of defect in merchandise or methods or procedures prescribed by franchisor and performed by such franchisee, except for alleged negligence or willful misconduct of such franchisee.”

IFA will lead opposition to this measure to prevent new, unjustified intrusions into the contractual relationship between franchise systems and franchisees in the Commonwealth of Massachusetts. For details, contact IFA Director of Government Relations Troy Flanagan at 202-662-0792 or

On Jan. 17, the US Senate Finance Committee approved tax relief legislation for small businesses, known as “sweeteners,” as the legislation will be paired with a minimum wage hike bill, to sweeten it, later this month. A week earlier, the US House of Representatives approved an increase in the federal minimum wage to $7.25 per hour over two years.

With a delicate balance of power in the Senate, however (with only 51 Democrats), a compromise must be struck in order to pass the minimum wage bill, which requires 60 votes. Therefore, a sweeteners package was developed to help small businesses, who are long understood to be the most negatively-affected by a mandatory wage increase. IFA shares this reasoning, and therefore strongly opposes an increase to the minimum wage without the necessary tax relief offsets to assist small businesses.

The package includes an extension of the work opportunity tax credit for five years, through 2012. WOTC is a credit for employers who hire certain low-income or high-risk individuals. IFA supports this extension, but also advocates for making WOTC permanent and extending it to include teenage workers.

Also included are several provisions to accelerate depreciation schedules, such as shortening to 15 years the now-39-year depreciation schedule for capital improvements to leased property. Owners of new restaurant buildings and retail stores owned by chains would also benefit from extending the 15-year depreciation schedule. Another provision is an extension to 2010 of Section 179 expensing, or the deduction from income of up to $112,000 in new investments in the year in which they are made, regardless of other tax rules requiring investments to be written off over a period of time.

The package was expected to be added to the Senate minimum wage hike bill and voted on by the full Senate as this edition of the IFA Insider was going to press. With a broader Democratic majority, the House is unlikely to approve adding sweeteners to their bill, and it is yet unclear whether both bodies can agree on and pass a legislative compromise to increase the federal minimum wage.

For information, contact IFA Manager of Government Relations and Political Education Jessica Bonanno at 202-662-0775 or

Urging Congress to step up and provide funding for the US Small Business Administration, IFA President Matthew Shay commended the House of Representatives’ recent efforts to pass a short-term extension to temporarily finance the agency’s operations. The uninterrupted functioning of SBA is vital to the small-business, franchising sector, he said.

“This vital federal agency must be kept viable so as to adequately serve a franchising sector that is responsible for substantial economic output. As we look forward to working together to support the SBA and its programs, we will also continue to urge Congress to enact meaningful legislation that supports access to affordable health care coverage for small businesses,” said Shay.

SBA programs such as the 7(a) loan program, Small Business Development Centers, the 8(a) certification program and others are great resources to the more than 760,000 franchised businesses and their employees   

Legislation has been filed and has cleared an initial hurdle in the Virginia Senate clarifying certain registration procedures of the state’s Retail Franchising Act. The measure, House Bill 2786 by Del. Johnny Joannou (D-Portsmouth), is supported by IFA. The House Committee on Commerce and Labor reported the bill unanimously on Jan. 18.

The bill, HB 2786, will authorize the State Corporation Commission to require, as a condition of franchise registration, that the franchise fees and other funds paid by a franchisee to the franchise system, be escrowed or deferred until the franchise company's pre-opening obligations are fulfilled, if the liabilities of the franchise company or any controlling person exceed the franchise system's liabilities. The measure also clarifies that it is not unlawful for a person to grant an unregistered franchise if the franchise is exempted from registration by the commission by rule or order and will give the SCC the power to exempt by rule large franchisors.

For more information, contact IFA Director of Government Relations Troy Flanagan at 202-662-0792 or

The Las Vegas casinos may be buzzing with activity when the IFA’s 47th annual convention kicks off, but odds are that the franchise professionals seen around Caesars Palace Feb. 24-27 will be paying closer attention to sector experts and entrepreneurs than to Texas Hold ‘Em and roulette.

More than 160 franchising-sector experts will lead sessions or deliver addresses to convention attendees who represent the sector. Incoming IFA Chairman and ServiceMaster Co. President and COO Michael Isakson and Money Mailer President and CEO Godfred P. Otuteye CFE, will discuss the elements for building a successful franchise network, while Focus Brands (Carvel, Cinnabon, Schlotzsky’s) President and CEO Steve Romaniello CFE, shares his ideas about how to turn around mature franchise brands.

International expansion is a key strategy that many franchise systems pursue. During the event’s International Summit, Max’s Restaurants President Robert F. Trota will help franchises gauge their readiness to enter the international market, while Home Instead Senior Care Vice President of International Development Yoshino Nakajima will lend advice on generating qualified sales leads.

US Commercial Service Specialist Finola Cunningham will address resources and first steps for legal and tax issues overseas, and British Franchise Association General Director Brian Smart will provide insight into challenges that franchises may face in foreign territory.

What are the keys to healthy franchise relations? 1-800 Dry Clean President Kristi Mailloux, PepsiCo Bottling Group Director of Urban/Multi-Cultural Marketing Wrenton Wright, Franchise Relationships Institute Managing Director Greg Nathan and McAlister Corp. President Philip Friedman will advise on different angles to creating a favorable climate for franchisees to maximize a system’s marketability and long-term franchisee happiness.

US Commerce Department Minority Business Development Agency Senior Director Ron Langston will deliver the event’s Diversity Summit keynote address on minority franchisee recruitment and the development of a diversity plan, and Fantastic Sams’ master franchisee Jerome Williams will explore related issues during a panel discussion.

During the Federal Trade Commission’s Franchise Rule and Franchise Sales Compliance Summit, McDonald’s Franchise Practice Group Managing Counsel Sandra Wall will address proposed revisions to the rule. Financing strategies, particularly turnkey financing and assistance programs for women and minority franchisee candidates, is the topic MaggieMoo’s Senior Vice President Stan Friedman will cover.

PostNet International Franchise Corp. Executive Vice President Brian Spindel CFE, and Data Doctors President Ken Colburn will highlight the effective use of technology for small franchises.

Other convention highlights will include the “Taste of Franchising” and the annual awards ceremonies where the winners of the association’s Entrepreneur of the Year, Hall of Fame, Bonny LeVine Award and Ronald E. Harrison Diversity Award will be announced. As of mid-January, the Exhibit Hall sold out at 261 booths, compared with 220 in 2006, which sets the stage for lively exhibit hall experiences.

Complete details about the event can be found at the association’s Web

The Franchise Expo Paris, to be conducted March 23-26 at the Port de Versailles, is a European springboard for the international commercial development of franchise companies. The event will present 440 franchising concepts in more than 75 sectors. It is a platform where concepts can be presented to 30,000 French and international professionals, entrepreneurs and investors invited to Paris to discover and buy the leading franchise concepts.

Exhibitors can forge contacts with future partners, investors, foreign experts; discover unexpected opportunities and countries; and share expertise and know how.

For expo information, contact Franchise Expo Paris’ International Development Manager Christophe Angleys at tel: +33 (0)1 47 56 52 06, Fax: +33 (0)1 47 56 51 00, cell: +33 (0)6 61 55 67 46 or

Consumers in Egypt and the Middle East may represent new markets worth investigating for your franchise systems’ products or services. Learn what these consumers are looking for by participating in the Fifth Middle East and North Africa International Franchising and Licensing Exhibition April 3-5 at the Cairo Marriott Hotel.

According to the event organizer, the Egyptian Franchise Development Association, the region represents 300 million consumers and Egypt has experienced an economic growth rate of 6.9 percent in one year.

For more information, visit

Franchise Systems: Bug Realty USA, Buffalo, Wyo., Contact Kevin Seney; Jim Burwell's Petiquette, Houston, Contact Jim Burwell; Cactus Car Wash, Summerville, SC, Contact Karen Barker; Extra Innings Training Center, Middleton, Mass., Contact Robert Nash; Geeks in a Flash!, Wilmington, NC, Contact Frank M. Montano; HIPP Companies, Denver, Contact Dennis Lane; Java Detour, Charlotte, NC, Contact W. Tom Reeder III; Kids Konnections, Springfield, NJ, Contact Dr. Natalie Elman; MARS The Real Estate Store, Hilton Head, SC, Contact Jamie Gilleland; Pacific Lawn Sprinklers Franchise, College Point, NY, Contact John Dellafiora; Powell's Sweet Shoppe, Windsor, Calif., Contact Michael Powell; Sophie's Cuban Cuisine Franchising, New York, Contact Sofia Luna; Power Smoothie Cafe, Deerfield Beach, Fla., Contact William Cullen; Straw Hat Pizza, San Ramon, Calif., Contact Joshua V. Richman; and the Tutoring Club, Henderson, Nev., Contact Chad Schwartz.

Supplier Forum: AcquireWeb, Foster City, Calif., Contact Albert Gadbut; Business Broker Network, Atlanta, Contact Shane Farley; Franchise Compliance, Cove, Utah, Contact Adam Valdez; Franchise Dynamics, Naperville, Ill., Contact Robert Stidham; Franchise Excellence, Dubai Media City, United Arab Emirates, Contact Sary M. Hamway; FRANMOGUL, Virginia Beach, Contact Timothy L. Holadia CFE; FranPR, Washington, DC, Contact Amy Bannon; Harris Goldman Productions, San Diego, Contact Linda Goldman; LexisNexis, Boca Raton, Contact Roi Stone; Marketing Architects, Minneapolis, Contact Ed Mezyk; Northwestern Mutual Financial Network, San Diego, Contact John Barry; Paychoice, Mansfield, Mass., Contact Curt Raffi; Shankman, Leone & Westerman, Tampa, Contact Dennis Leone; The National System, St. Louis, Contact Christopher McTague; and World Trade Printing Co., Garden Grove, Calif., Contact Rachel Rusnak.

John Reynolds, president of the IFA Educational Foundation, recently celebrated 20 years of service with the trade group. Since joining the IFA in the late 1980s, Reynolds has held a variety of positions and worked with countless volunteer leaders in the franchising community. In recent years, he has led efforts in the fields of research and diversity services, overseeing the publication of the foundation’s first Economic Impact of Franchised Businesses study and the launch of the Diversity Institute.

Reynolds is credited with aiding the revitalization of the Certified Franchise Executive program and for leading IFA’s collaboration with such groups as Students in Free Enterprise, Service Corps of Retired Executives, the US Small Business Development Centers and others.

“The association recognizes John Reynolds’ many contributions to the IFA, and congratulates him for his commitment to serving our members so well and for so many years,” says IFA President Matthew Shay.

Franchising resources to address typical questions from franchisors, franchisees, suppliers and prospective franchisees about the sector are easily located at IFA’s Web site Franchise. org. Visit often to get the latest news, views and events affecting the franchising community.
Review advantages of CFE participation
Learn how franchise company CEOs take advantage of the CFE program for better preparation and better performance.  A wide range of courses, from franchise sales to financial management, is available.  New courses have been added, including a franchise relations clinic, a leadership skills session and compliance training. Others have made an educational investment today to reap the rewards tomorrow.  Is it your turn?
Self-regulation program includes online help 
To review a framework to assist in building positive franchise relationships, visit Visitors to the IFA’s Web site will see details on the association's Code of Ethics, ombudsman program and information about conflict resolution resources. There visitors will also find an online course on franchising basics and how to participate in a franchise sales compliance seminar.
What is the “Voice of Franchising” saying? 
Visit the IFA Government Relations site to get the latest news on international, federal and state issues affecting the franchising sector.
Let’s go shopping
A quick stop at the online IFA Store gives visitors an opportunity to select publications, reports, research and more geared to the needs of the franchising community.
Review franchising events online
A list of upcoming IFA events is available for review on the association’s Web site.  Take a tour of 2007 to be sure time is set aside to attend such events as the 47th Annual Convention in Las Vegas, the International Franchise Expo March 30-April 1 in Washington, DC and more.

Important dates in franchising
FEBRUARY 1-2: How to Become a More Effective Field Consultant, Management 2000*, Houston… 17-18: Canadian Franchise Association, The Franchise Show, Toronto Congress Centre…23-24: ICFE Special Session*, Caesars Palace, Las Vegas…24-27: 47th Annual Convention, Las Vegas
MARCH19-20: How to Recruit Better Candidates & Close More Franchise Sales, Management 2000*, Houston…28: Mastering Franchisee Recruitment*, Washington, DC…29: Developing Peak Performing Franchisees*, Washington, DC…29-30: How to Become a More Effective Field Consultant, Management 2000*, Houston…March 30-April 1, International Franchise Expo, Washington, DC Convention Center… 
MAY6-8: *40th Annual Legal Symposium, Washington, DC… 8-9: IBA/IFA Joint Conference*, Washington DC… 8-12: American Hotel & Lodging Association Annual Meeting, The Fairmont Southampton Bermuda…19-20: National Restaurant Association Annual Convention, Chicago…20-23: International Council of Shopping Centers Spring Convention, Las Vegas…
SEPTEMBER10-11: Franchise Appreciation Day, Washington, DC…9-12: Fall Leadership & Board of Directors’ Meeting, Washington, DC… 
OCTOBER 19-21: West Coast Expo, Los Angeles Convention Center… 

*=Institute of Certified Franchise Executives credits given.  CFE=Certified Franchise Executive.

The IFA Insider is written, edited and produced by Laura Fenwick, Terry Hill, Jodi McCray, Hilary Strahota

IFA Insider newsletter is published bi-weekly (24 times a year).  Correspondence:  International Franchise Association, 1501 K Street, N/W., Suite 350, Washington, D.C. 20005, (202) 628-8000.  © Copyright 2007 International Franchise Association.  Contents of this publication may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without prior permission of the publisher. The International Franchise Association sends out email and fax updates  and opt-in email newsletters to its membership.  If you would no longer like to receive one or all of these communications follow the "Unsubscribe" instructions found at the bottom of each email, fax or newsletter. For further questions, please call our Membership Service Department at 202-662-0765 between the hours of 9:00 a.m. and 5:00 p.m. Eastern, Monday-Friday or e-mail