FRANCHISE LAWYER

August 2005

By Van Elmore and Linda Hardesty

The Law Firm Perspective

After several years of successful sales, the founder and Chief Executive Officer of one of our franchisor clients began expressing to us that he was encountering some difficulty in remembering some of the facts regarding the company’s franchise and, especially, area development, agreement and relationship details. With the growth of the franchise, the number of agreements and the various parameters inherent in each, such as the territories designated in the franchise agreements, area development territories and schedules, assignments to third parties and opening deadlines, were all becoming too numerous to keep in mind. We offered to help create a methodology to track all of these variables along with more prosaic information such as franchisee contact information, store square foot areas and addresses and the facilities available in each location.

We initially considered a simple approach using a spreadsheet like Excel to collect the information. However, after some evaluation of that alternative, we determined that it would be much more beneficial to come up with an approach that would allow us to not just collect the information but also to run different reports and collations of the information.

We then considered moving to database software to do the job. We were aware of a few such programs specifically created for franchisors. We looked at several of these programs and began discussions with the client regarding their possible use. However, the client quickly informed us that he had, in another business, experienced problems with databases that were narrowly programmed for limited purposes. Specifically, in the client’s other business, he and his partners had spent significant funds to acquire, adapt and implement the use of unique databases only to have the vendors/programmers go out of business. This, of course, left the client in the regrettable position of having to start the whole project over at additional expense. Consequently, he insisted that we make use of a database that was “off the shelf”. (The fact that this particular client did not feel that a database tailored specifically to franchisors was right for it should not be taken as a negative prediction regarding any such database that may be on the market today.)

We considered using Access, Microsoft’s database management system (DBMS), because there were people in our firm who were experienced with it and inclined toward its use. Others, however, suggested that FileMaker, a historically Mac-based DBMS, was much easier to use. After finding some good reviews of FileMaker 7, which is now compatible with the Microsoft Windows environment, we downloaded some trial versions and, after some experiments, decided to recommend its use to our client. We also asked that the client download the trial versions to gain a comfort factor and confirm that the software would be compatible with the client’s computer systems.

Once the preliminary evaluations and selection were accomplished, it was time to start identifying the fields, or types of information, that we wanted to track. This was part of the fun for us legal types.

We began with a chronological approach to the contract process and, with respect to pre-contract disclosures and contract execution, included the following fields:

• UFOC versions delivered
• Date UFOC delivered
• Date UFOC receipt signed
• UFOC receipt signors
• Effective date of contract
• Date of document receipt
• Contract version
• Contract signors
• Dates the contract was signed
• Grace periods

We also created fields for subsequent activities relative to contract performance such as:

• Site selection
• Insurance certificates
• Training attendees
• Opening dates

There are several fields to track assignment information. This franchise system has a process for assignment to a wholly-controlled entity as distinguished from assignment to third-parties. We created a field for each type of assignment.

Renewal dates and associated disclosures are also tracked. In relation to area development agreements, the development obligations are set forth. Of course, there is also provision for franchisees’ contact information, store addresses, square footage and other onsite variables.

Initially, we set forth all of these variables in a Word table. At this point, we realized that it would be more efficient to acquire an individual who was already knowledgeable about FileMaker and its implementation to set up the database. We located a FileMaker Consultant and she began to input our fields into the database.

Once the basic database was created, we used it, tweaked it and finalized it. The next step was the creation of a few basic reports that the database would generate on command. One such report is called the Item 20 report. This report presents the Item 203 information as required by the UFOC guidelines. We will always confirm it and cross check it, but the Item 20 report is a valuable tool for UFOC renewals.

Given the number of existing contracts, the initial data entry was a significant project. However, now that this effort has been completed, data input will be a more routine matter. The data entry should be handled by someone at a paralegal level who has experience with franchise contract issues in order to ensure valid data entry. That data also should be checked by the attorney periodically.

The database has been placed on a secure website so that there is only one database and so that authorized individuals can access it whether from their office or on the road. Different levels of access have been created depending upon the individual’s job description. Despite the location on the website, a software plug-in enables complete access, if authorized, to specific agreements on our computers. Territory maps are also part of each contract folder.

One aspect of this database that is particularly attractive is that it can grow and change as the client’s needs demand. Additional fields can be added and new reports can be generated as they become desirable. We are pleased with the outcome and look forward to the database growing into a more and more important tool for everyone involved.

The FileMaker Consultant Perspective

FileMaker Pro 7 has extensive support of industry standard data exchange technologies, such as ODBC, XML, and SQL. This means that databases developed in FileMaker as in-house solutions are completely “unlocked” in the sense that data can be retrieved in a usable format and transferred to other applications at any time in the future. Also, there are hundreds of thousands of potential employees who have experience using FileMaker Pro, and thousands of professional FileMaker developers spread around the country and the world. These facts were important to the client in this case because of a previous bad experience with a software company going out of business and leaving no support. This longevity and this support availability are also worth considering when you make decisions about software for your business. I have clients who are still using FileMaker solutions developed for them 10 or more years ago. These solutions have repaid the initial investment many times over, and are still going strong.

Many clients store information in word-processing documents or spreadsheets, but then find they would like to be able to use their data more easily, and to automate their business procedures. The value of a relational database is classically illustrated by a system of customer records, which are used to generate invoices and which themselves contain a list of items sold. In contrast to the use of a relational database, you could have
a spreadsheet that lists your customers’ addresses and contact information, and many word processing documents that are invoices for each customer. But you would have to duplicate the word processing documents each time you wanted to create a new invoice, leading to a proliferation of vaguely-named files to be organized on your computer.

Also, if you updated contact information in the spreadsheet, you would have to remember to update the contact information in the next invoice you created for that customer.

A properly developed relational database application allows you to enter data only once, and have it propagate through the system. You could find the customer in your customer list and click a button to create an invoice for that customer. The invoices remain “related” to the parent record, and can be found or summarized as a group based on the parent record. The system of relationships can extend to many levels, such as the second
degree relationship between the customer record and the items on the invoice. In a relational database, one can search for customers who have or haven’t purchased certain items – for example, in order to market items that might be of interest to them.

In the case of this franchisor, the top-level records are the entities that have franchise or area development agreements with the franchisor. The next level is the franchise or area development agreements themselves. If there is an area development agreement, related franchise agreements are in the level below it. Under franchise agreements (or area development agreements), data is divided into people (shareholders, employees), assignment history, locations, documents, and maps. All of this data is presented in a cascading tabbed interface that allows the user to “drill down” to more specific information, or “fly up” to more general information.

A database makes it easy to look up discreet bits of information and to create reports that present and summarize large swaths of your data. FileMaker allows searching on any field and sorting by alphabetical order, numerical order, or an arbitrary order you define. Text and images can be placed anywhere on the page and made any size for readability (or unreadability). Data can be summarized in a number of different ways. The entire process of generating the report can be made automatic, at the click of a button. With careful design, the database itself can generate reports that are ready to print. In this case, that includes an Item 20 report for inclusion in the UFOC.

As the needs of the organization grow and change, the database must grow and change with them. It is important therefore to choose a database management system that doesn’t lock the organization into a limited form of data collection and manipulation. With FileMaker, new fields and reports can be added at anytime. Also, changes to old fields, reports, layouts and scripts are propagated automatically throughout the system,
eliminating the need to manually re-code all the objects that refer to the changed items. Individual users can add and modify their own form letters, for example, with very little training, and no intervention needed from professional programmers.

Interacting with a database consultant can be easy or hard depending on communication styles. Fortunately, the legally trained mind and a software-developer’s type of thinking both have to be logical to be successful, so there is common ground. I prefer to communicate frequently with the end-users, to get feedback on what is working and what isn’t, and to shape the development project that way, rather than try to design and execute
the entire project from specifications gathered in advance. FileMaker Pro is an ideal platform for this sort of work, because it is easy to modify on-the-fly, even while users are logged on and using it. Having the file hosted on the Internet is extremely handy, both for users at multiple locations, and for remote development. Multiple users at any location with Internet access can use the same data and see updates in real-time. Real-
time record and field locking is the only way to ensure data integrity, and any serious database must be capable of it. (FileMaker is, of course, and so are all the major database management systems).

Linda Hardesty has been a full-time free-lance FileMaker Pro developer in Boulder- Denver, Colorado, for over ten years.

303-545-9044
Email lhardesty@lindahardestycomputing.com.

Van Elmore is the principal in The Law Offices of Van Elmore located in Denver, Colorado; founded in 1992. Mr. Elmore practices in the areas of franchising and intellectual property. He also serves as an arbitrator and mediator.

(303) 659-7342
Email velmore@elmorelaw.com