Franchise Contract Compliance - A Closer Look
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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Carlos Gomez, an audit manager and one of the faces of the PKF Texas Contract Compliance Services team. Carlos, welcome back to The Playbook.
Carlos: Thanks for having me again.
Jen: On our last video, you mentioned about franchise compliance, and that’s a type of audit that we do that we provide as part of our contract compliance services. What is a franchise compliance audit?
Carlos: Typically, the way a franchise is set up, they license a territory, certain rights; whether it be a restaurant, some type of service industry, from a franchisor who developed a plan, put together a program, how to really build a business. And so, when they license that right to get a franchise in a certain location, the franchisors just want to make sure they’re getting their—not only correct revenue, but that they’re obeying the terms of the agreement; whether that be marketing, advertising and treating the brand with respect.
Jen: Why should somebody be concerned if a franchisee is in compliance with their contract?
Carlos: There’s a lot of brands out there that have taken a lot of time to develop their image. They’ve put a lot of marketing effort, and really, a good name out in the marketplace. They’re just concerned that a franchisee shows that image, that they treat their customers with respect and that their brand is treated the way that it should be in the marketplace.
Jen: Are there any red flags that you guys see when you’re auditing these companies?
Carlos: Some of the bigger ones that are really easy is just not reporting.
Jen: Yeah, that’s kind of an obvious one.
Carlos: Or not paying. And you do see it from time to time, but a good way to know some other red flags are trend analysis. If you know a season of a franchisor—say they’re a franchisor that does heating and air conditioning—you know that in the summer, it’s going to be a lot more business. If the sales aren’t spiking at that time, you can identify those easy.
Jen: So, now do you help franchisees with their compliance?
Carlos: We do. We try to help as much as we can. Obviously, being a third party, and we go in to do an audit just to make sure everybody is obeying by the terms of the contract, that’s really our job, but we try to take a better approach. We try to come in as a third party that’s trying to make it a mutual respect and mutual relationship; any way that we can that, obviously, the franchisor approves of, we help.
Jen: So, do we have to be mindful of any independence regulations like we would for a normal audit?
Carlos: Really good question, but what’s great about contract compliance services is that we’re doing a consulting service, and we are not making any decisions on behalf of management. We’re only making recommendations. So, whether they choose to take our opinion or not is up to them.
Jen: Perfect. Well, we’ll get you back to talk a little bit more about the contract compliance services. Sound good?
Carlos: Yes, ma’aam. Thank you.
Jen: For more about this topic, visit www.PKFTexas.com/ContractCompliance. This has been another Thought Leader Production, brought to you by PKF Texas – The Entrepreneur’s Playbook. Tune in next week for another chapter.