GF-NorthAmerica-Focus

INS IGHT Everything is bigger in the U.S.A. – don’t be daunted How to approach the largest franchise industry in the world he U.S. franchising marketplace is one of the most – if not the most – successful in the world. It is also one of the oldest and mature. This sector’s maturity also means there is some complexity to navigate when seeking to bring your franchise business to the United States. This complexity and market scale should not deter your ambition to bring your franchise system to the U.S. Yes, it can be complex and there can be stiff competition but, given the wide acceptance of franchising and the massive size of both the B2B and B2C market sectors, it is well worth the effort. Research is critical. Seeking local advice essential. Deciding on which state and city to launch in is very important. Method of entry is also mission-critical. Do you want to own it 100 per cent? Do you want to partner with a U.S. entity? Cultural fit research Too many times over the years have I have seen simplistic assessments of the cultural fit of a franchise for the U.S. market. Just because you might come from an English- speaking country that has many U.S. franchise systems, or you may think they eat similar foods or utilize the same services, does not guarantee success. Spending time to understand what, if any, cultural barriers there are for your franchise in the U.S. is important. Joining the International Franchise Association is a great way to begin expanding your U.S. franchise connections and to help find credible suppliers to deal with. I can’t recommend that strongly enough. Corporate and tax complexities As per Michael Iannuzzi, CPA, CFE, and co-practice leader of Citrin Cooperman’s franchise practice: “From a tax perspective one of the key items of focus is to determine how you will operate in the U.S.A. What is the ideal corporate structure for the franchisor to be operating under? “For example, a U.S.A. franchisee pays a royalty to a foreign entity. Those franchisees could be required to withhold taxes on those royalty payments and the franchisee now must understand the tax complexities and remit the withheld tax money to the Internal Revenue Service. “This is not a customary practice and it places an extra unfamiliar burden on your franchisees. There are ways to structure the U.S. franchisor that avoids franchisees having to withhold their royalty payments. “Another key point to consider is what states do you plan on operating in and where will you be filing your initial FDD? The FTC has certain financial statement audit requirements that allow a ‘phase- in of audited financial statements’. However, if you enter a registration state, such as New York, these phase-in benefits do not apply and their rules require full audits with your initial FDD filing.” T 40 GLOBAL FRANCHISE | NORTH AMERICA SPECIAL 2021 Geography and regionality 2020 was the catalyst for a huge long-lasting shift in how and where we live and work. Many ‘traditional’ franchise sectors such as fast food and hospitality have had to change their operations overnight, and challenges such as closures unfortunately aren’t going anywhere for the first part of 2021 at least. The office franchise space has also quickly responded and is now tuned in to cater to the changing working practices that are here to stay. While the industry will undoubtedly undergo a number of changes in 2021, the outlook for franchised office space looks positive, offering an attractive proposition for existing franchisees to diversify their portfolio and reduce risk, as well as for budding entrepreneurs who wish to start their own business under an established brand. Climate Let’s also talk about the varying climates of the U.S. and its potential impact on how your franchisees can operate. The effects of the seasons vary widely across the States. If you’re a service-based franchise whose franchisees work outside, then this a serious consideration to factor into your launch plans. The North East region has very cold winters and you must assess if your franchisees can operate during winter and what WORDS BY MICHAEL O’DRI SCOLL , CFE THE AUTHOR Michael O’Driscoll CFE has been in the franchising sector for 30 years. He has been a CEO, COO and board director of several franchise systems. He is former director of the Franchise Council of Australia and holds an MBA in Internation- al Franchise Strategy “Geographically, the U.S. is an enormous country. This size translates to a richly diverse regionality of culture and ethnicities”