Maintaining Risk Management Focus As Economy Improves

March 30, 2012

As Economic and Business Conditions Improve, Stay Focused on Risk Management

I recently read an article in the Washington Post on the state of the franchise industry. It highlights how new economic indicators show the franchise industry is growing stronger. Additionally, the IFA’s Franchise Business Index currently stands at 107.7 today compared to 106.3 last year. This industry is moving in the right direction and that’s exciting for anyone involved with franchising.

Since the franchise industry is vast—over 300 unique lines of business, supporting 18 million jobs and providing over $2.1 million in economic output—I consider this to be an important indicator of the overall state of the U.S. economy. Many of my own franchising clients agree, and most are bullish on the future. A number of them are gearing up for significant new franchise development efforts, and are excited about the possibilities

So what does this bit of optimistic news mean for franchise risk management? Basically, it reaffirms that franchisors need to continue to maintain strict standards with respects to a system-wide risk management plan, including:

  • Managing and enforcing FDD compliance
  • Consistency in processes and procedures across the brand
  • Regular communication so that franchisees are aware of how their actions can impact other franchisees, the brand and the franchisor
  • Maintaining strict standards on franchise development. Twenty percent of your franchisees will provide 80% of your issues. Reduce that up front by tightening your development process.
  • Understand ALL the moving parts of your business model, product and service. Remember, as the franchisor, you potentially carry the vicarious liability risk of your franchisees’ actions. Be aware of this.

These are just a few points to consider. Honestly, it’s exciting that there is so much optimism among the franchise community today. Help maintain that optimism by preventing risk to your system through the implementation of a strong risk management program.

--Image used under Creative Commons from Dimitris Kalogeropoylos