INTERVIEW

IFA will be active on a number of other issues that will affect the franchise community. We support tax relief for franchised businesses and depreciation reform in particular, whether for real property, leasehold improvements or equipment. Of course, these proposals will also benefit company-owned units as well. A number of tax bills have already been introduced in this Congress, and others are expected.

Q: As you observe, there are many tax bills in Congress. What's your perspective on how President Bush's plan would help franchisees?

A: President Bush's tax plan is focused primarily on individual tax relief, and it is not intended to assist corporate America directly. It is the Administration's position that if people can keep more of the money they make, it will help grow the economy over the long term, because they will make better decisions about the use of that income than the government would. One of the only items in the President's tax proposals that affects business is the call for an increase in the amount that a small business can 'expense' (ie, expenditures that can be immediately written off on their taxes in the year of the expenditure, rather than depreciating the purchase over time, thus reducing tax liability). The President's plan would increase the amount that can be expensed from the current level of $25,000 per year to $75,000 per year for allowable purchases made by small businesses. For franchisees that qualify, this is a huge benefit.

Also, the acceleration of the previously enacted cuts in individual rates with help individuals in the franchising community and will be particularly beneficial for those who are organized as an S-Corporation, thereby paying their business taxes based on individual tax, rather than corporate tax, rates ' in effect, a further tax cut.

Q: What else is on the horizon in Congress?

A: Another legislative priority is legal reform. IFA supports the U.S. Chamber's Litigation Fairness Campaign and its goal to enact meaningful legal reform, including reform of class-action lawsuits, reasonable limitations on damage awards, and the election of fair and impartial judiciary in state courts. This effort includes support for the 'Class Action Fairness Act' in both houses of Congress and other liability reforms such as medical liability. Collectively, these proposals will ultimately reduce the costs of doing business for franchisees and franchisors.

Incremental health care reform will be part of the Congressional debate as well, and IFA supports passage of legislation creating association health plans, which would provide small franchised businesses with access to affordable health care coverage for employees through sponsoring organizations like the IFA.

A few other items: Many of our members are also concerned about Social Security mismatch and other issues that may evolve from homeland security efforts. Depreciation reform is vital in order to make capital expenditures financially feasible for small-business owners. And finally, IFA and other business organizations are on guard against a labor-sponsored amendment to increase in the federal minimum wage, tacked onto any tax cut plan.

Q: IFA has recently made the argument that a struggling economy can be good for franchising because there are so many capable, experienced people without jobs. Can you elaborate on this observation?

A: Franchising has traditionally fared well at times when other investments and sectors of the economy are not performing particularly well. With the economy, and the stock market in particular, performing poorly, many investors are seeking investment opportunities that will provide greater levels of control over their investment as well as opportunities for long-term growth and development. Franchising provides these entrepreneurs the opportunity to be in business 'for themselves, but not by themselves,' and to put capital to work with an investment in which the entrepreneur has greater control over return on investment than traditional financial markets.

In addition, the current universe of potential franchisees is particularly attractive to franchise systems, as many of these individuals seeking new investment opportunities come from among the ranks of business and management and possess the business skills and acumen, in addition to investment capital, to become successful franchisees.

Finally, at a time when other business start-ups may not have access to necessary start-up capital, lenders and the financial community also find franchised businesses attractive candidates for financial assistance because of the many advantages of a franchised business ' a proven business plan, ongoing training, support, education, advertising and promotion of the business concept ' over an independent start-up business. In the current economy, these factors may make franchising a promising alternative to other investment opportunities.

Q: You just announced that IFA will, basically, absorb the National Franchise Council (NFC). What will be the impact of IFA assuming the Alternative Enforcement Program previously administered by the NFC?

A: The addition of the Alternative Enforcement Program will complement and enhance IFA's current self-regulatory efforts for the entire franchise community. Our Self-Regulation Program includes the IFA Code of Ethics and Code Enforcement Mechanism, the IFA Ombudsman Program, and IFA Educational Foundation on-line Franchisor Compliance and Franchise Basics courses. Each of these self-regulatory elements assists franchisors and franchisees in complying with franchise registration and disclosure laws and avoiding and resolving disputes that occasionally arise in franchise relationships. The Alternative Enforcement Program complements these other programs for several reasons. First, the program demonstrates IFA's commitment to franchise law compliance for franchisors and individuals involved in the franchise sales and disclosure process. Second, the program provides federal and state regulators, and franchise systems that have committed minor or technical violations of franchise laws, with a cost-effective alternative to litigation. Third, the program provides a valuable service for the regulatory community, which can now effectively allocate resources, diverting minor and technical violations of franchise laws to a retraining and education program and permitting regulators to devote more significant resources to pursuit and enforcement against serious law violations. The transfer of the Alternative Enforcement Program to the IFA is a 'win-win' for IFA's members, regulators, franchise investors, and the entire franchise community.

In this exclusive interview with International Franchise Association (IFA) chairman Steve Siegel, Associate Editor Kevin Adler, asks about policy priorities for 2003, and other legislative and regulatory developments that affect the franchise industry.

Q: What are IFA's federal policy priorities for 2003?

A: Our top priority remains opposing any 'franchise relationship' legislation that would rewrite franchise business contracts by taking private contracts out of the hands of individuals. Although introduced in recent Congresses, a bill has not emerged so far in the 108th Congress. IFA opposes federal restrictions on the franchise relationship because such restrictions inhibit a franchise system's ability to protect its brand, maintain uniform standards in the delivery of products to customers, and remain competitive in the marketplace. Ultimately, such legislation diminishes the value of the brand and the franchisee's investment in the business.

IFA will be active on a number of other issues that will affect the franchise community. We support tax relief for franchised businesses and depreciation reform in particular, whether for real property, leasehold improvements or equipment. Of course, these proposals will also benefit company-owned units as well. A number of tax bills have already been introduced in this Congress, and others are expected.

Q: As you observe, there are many tax bills in Congress. What's your perspective on how President Bush's plan would help franchisees?

A: President Bush's tax plan is focused primarily on individual tax relief, and it is not intended to assist corporate America directly. It is the Administration's position that if people can keep more of the money they make, it will help grow the economy over the long term, because they will make better decisions about the use of that income than the government would. One of the only items in the President's tax proposals that affects business is the call for an increase in the amount that a small business can 'expense' (ie, expenditures that can be immediately written off on their taxes in the year of the expenditure, rather than depreciating the purchase over time, thus reducing tax liability). The President's plan would increase the amount that can be expensed from the current level of $25,000 per year to $75,000 per year for allowable purchases made by small businesses. For franchisees that qualify, this is a huge benefit.

Also, the acceleration of the previously enacted cuts in individual rates with help individuals in the franchising community and will be particularly beneficial for those who are organized as an S-Corporation, thereby paying their business taxes based on individual tax, rather than corporate tax, rates ' in effect, a further tax cut.

Q: What else is on the horizon in Congress?

A: Another legislative priority is legal reform. IFA supports the U.S. Chamber's Litigation Fairness Campaign and its goal to enact meaningful legal reform, including reform of class-action lawsuits, reasonable limitations on damage awards, and the election of fair and impartial judiciary in state courts. This effort includes support for the 'Class Action Fairness Act' in both houses of Congress and other liability reforms such as medical liability. Collectively, these proposals will ultimately reduce the costs of doing business for franchisees and franchisors.

Incremental health care reform will be part of the Congressional debate as well, and IFA supports passage of legislation creating association health plans, which would provide small franchised businesses with access to affordable health care coverage for employees through sponsoring organizations like the IFA.

A few other items: Many of our members are also concerned about Social Security mismatch and other issues that may evolve from homeland security efforts. Depreciation reform is vital in order to make capital expenditures financially feasible for small-business owners. And finally, IFA and other business organizations are on guard against a labor-sponsored amendment to increase in the federal minimum wage, tacked onto any tax cut plan.

Q: IFA has recently made the argument that a struggling economy can be good for franchising because there are so many capable, experienced people without jobs. Can you elaborate on this observation?

A: Franchising has traditionally fared well at times when other investments and sectors of the economy are not performing particularly well. With the economy, and the stock market in particular, performing poorly, many investors are seeking investment opportunities that will provide greater levels of control over their investment as well as opportunities for long-term growth and development. Franchising provides these entrepreneurs the opportunity to be in business 'for themselves, but not by themselves,' and to put capital to work with an investment in which the entrepreneur has greater control over return on investment than traditional financial markets.

In addition, the current universe of potential franchisees is particularly attractive to franchise systems, as many of these individuals seeking new investment opportunities come from among the ranks of business and management and possess the business skills and acumen, in addition to investment capital, to become successful franchisees.

Finally, at a time when other business start-ups may not have access to necessary start-up capital, lenders and the financial community also find franchised businesses attractive candidates for financial assistance because of the many advantages of a franchised business ' a proven business plan, ongoing training, support, education, advertising and promotion of the business concept ' over an independent start-up business. In the current economy, these factors may make franchising a promising alternative to other investment opportunities.

Q: You just announced that IFA will, basically, absorb the National Franchise Council (NFC). What will be the impact of IFA assuming the Alternative Enforcement Program previously administered by the NFC?

A: The addition of the Alternative Enforcement Program will complement and enhance IFA's current self-regulatory efforts for the entire franchise community. Our Self-Regulation Program includes the IFA Code of Ethics and Code Enforcement Mechanism, the IFA Ombudsman Program, and IFA Educational Foundation on-line Franchisor Compliance and Franchise Basics courses. Each of these self-regulatory elements assists franchisors and franchisees in complying with franchise registration and disclosure laws and avoiding and resolving disputes that occasionally arise in franchise relationships. The Alternative Enforcement Program complements these other programs for several reasons. First, the program demonstrates IFA's commitment to franchise law compliance for franchisors and individuals involved in the franchise sales and disclosure process. Second, the program provides federal and state regulators, and franchise systems that have committed minor or technical violations of franchise laws, with a cost-effective alternative to litigation. Third, the program provides a valuable service for the regulatory community, which can now effectively allocate resources, diverting minor and technical violations of franchise laws to a retraining and education program and permitting regulators to devote more significant resources to pursuit and enforcement against serious law violations. The transfer of the Alternative Enforcement Program to the IFA is a 'win-win' for IFA's members, regulators, franchise investors, and the entire franchise community.