Franchisors have a lot of challenges especially with the franchise business model and their growing number of franchisees to keep track of. Because of the common problem of under reported sales (which results in franchisees to pay less royalties), the franchisor cannot make enough money from royalties to put towards growing the brand, supporting the franchisee’s operations, or selling more franchises. The universal struggle between franchisor and franchisee can pose a threat to the brand and can be detrimental to both the franchisee’s and the franchisor’s existence.
There are many ways for a franchise owner to intentionally under report sales to the franchisor, thereby reducing the amount they pay in royalties. A few methods of under reporting may include:
- Voiding sales, refunding, item deleting, and failure to ring all transactions.
- Ringing sales in training mode.
- Not recording outside catering sales.
- Using unauthorized registers at varying times during hours of operation.
- By reporting and paying fees on a sales number less than what the sales actually were.
The Mershimer Group can present solutions to prevent under reporting of sales and improve the franchise system’s operating standards. Acting like a franchise consultant, The Mershimer Group meets with a franchisor and makes a plan of action. The primary objective is to create a program for the franchisor meant to deter under reporting of sales, and to determine if franchisees are in compliance with policies and standards. The Mershimer Group combines the use of various tools of franchise loss prevention, including consultations, a royalty audit, investigations, mystery shops and awareness materials to create an atmosphere of sales reporting integrity.
Here is a sampling of programs The Mershimer Group can execute:
Franchise Royalty Audit / Royalty Assurance
Our auditors will conduct franchise audits using your existing franchise royalty audit template or one that we create together. The audits are used to identify under reporting of sales and other theft indicators. The franchisee support team can use audits as training and operational tools.
Under Reporting Investigation and Documentation
Franchised stores can be investigated as needed to help obtain evidence of under reporting, unauthorized transfer, unauthorized distribution and supply channels.
Integrity Shopping
Mystery shops can include any components as directed by the client. Are sales being recorded into the register? Is money being placed in the register?
Problem Store Visits
Visits are made to raise awareness, deter under reporting of sales, and to occasionally audit the franchisees. Franchisees respond when an auditor is at their location and looking through their business with a watchful eye.
Franchise Consultant
The Mershimer Group can provide independent guidance to franchisees on various loss prevention standards, which will deter internal theft in their businesses. We can also provide high-level strategy to a franchisor or a company thinking about franchising to develop operational standards surrounding this subject. The Mershimer Group can consult the franchisor on the language used in the UFDD.
Business Standards Evaluations
Because we have a database of over 500,000 independent contractors, The Mershimer Group can conduct brand standard evaluations as often as required by the franchisor. Reports of findings and areas of serious non-compliance are presented to our client’s legal department in the form of actionable data. This will allow our client to follow up on issues using curable or non-curable defaults.
Loss Prevention for company-owned units
The Mershimer Group can be a fully outsourced loss prevention alternative for a franchise’s company-owned units. We can offer services such as
- Loss prevention meetings.
- Awareness visits.
- Royalty audit.
- Theft and loss investigations.
- Employee hotline.
- Video review.
Program Results:
- Higher royalty collections.
- Reduced cash, inventory and food loss with improved food, labor, and paper costs.
- More informed and profitable franchisees
- More profitable brand.
Client results have demonstrated significant income and sales growth after a Mershimer Group program has been in effect for a period of time. A successful program requires high visibility and consistent communication of program components and success stories. A “halo” effect can be seen in sales and raw material to sales yield system-wide.
