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         CHANNELS OF DISTRIBUTION CONSULTING
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         TO MULTIPLY SALES, PROFITS, AND VALUE
      DEALERS, DISTRIBUTORS, FRANCHISES, LICENSES, JOINT VENTURES, AFFILIATES, ETC.

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Efficiency Audits, Due Diligence Investigations

If you are thinking of improving, buying, or selling a chain, you should keep in mind that what is good for the individual unit operator is also good for the chain.

This may seem counter-intuitive, as benefits to the unit operator cost the chain and vise versa.This apparent contradiction is resolved, however, when it is understood that the two are mutually dependent. One of the primary purposes of any third party chain due diligence investigation is, therefore, to ascertain if the unit operator - chain owner relationship is well-balanced.

Documents, past and present, are the principal source of information about all relationships. Well-crafted, easy-to-understand, and comprehensive documents are a minimum requirement. Without this, relationships are not clearly defined and open to misinterpretations, misunderstandings, and conflict. Too many variations and versions of documents could also create an administrative challenge and dissension among unit operators and between them and the chain owner.

The most well-crafted documents cannot make up for ill-advised rights and obligations on either side. Unnecessary restrictions and obligations just introduce inefficiencies into the system and lead to sub-optimal results for everyone involved.

Investment and cash flow of all parties must meet certain minimum standards and relate to the contribution by each party, or the seeds of discontent will soon germinate and infest the culture of the whole chain. Careful pro forma modeling and testing of assumptions are the main means for determining if a particular chain is vulnerable.

When you deal with a franchised chain, the Franchise Disclosure Document ("FDD"), a disclosure document required by the Federal Trade Commission and about half of the states, provides other useful information, as well:

  • Management may be deficient in some respects.
  • Litigation history may indicate more fundamental problems for the chain.
  • The existence of renegade franchisees may be undermining the brand.
  • A large number of franchisees being terminated or leaving the system voluntarily immediately sends up a red flag.
  • The financial disclosures may reflect a high-risk venture.

Each piece of information may not seem significant, but the combined picture may indicate either a solid venture or a questionable situation. Conversely, one piece of negative information may be enough to jeopardize the whole chain even if everything else seems immaculate.

Beyond documents and financial modeling, interviews with past and present distribution-point operators are all-important. Although the documents may only hint at important issues, such interviews could open wide the window to potential pitfalls.

Other indicators of a healthy chain are the quality of its operations manuals and training programs and its unit operator marketing and sales activities and materials. These could well indicate the caliber of unit operators involved with the chain and management's view of its channels.

An analysis of competitor documents (agreements, disclosure documents, operations manuals, and marketing materials) is the definitive method for evaluating the positioning of the chain in the market-place, and for gaining an initial understanding of its competitive advantages and disadvantages.

Finally, other external sources of useful information may include associations, trade publications, customers, suppliers, competitors, etc. A complete due diligence investigation would include interviews with several of these. For non-franchised chains, this may become the primary methods for obtaining information.

In addition to chain-related issues, due diligence investigations must cover all standard business issues, several of which are covered on this page. For a more complete list of issues to investigate, go to:

     

as well as to:

     
 
"We always want this ultimate business professional on our team."
-Vic Koppang, President and CEO, Koppang Franchise Development Company (Modernistic Carpet Cleaning)
News... A recent US Supreme Court decision reversed a long-standing precedent and declared it not necessarily illegal for chains to set minimum prices. The same had been said earlier for maximum prices. The legality of price fixing is, therefore, now fully based on the effect it may have on the markets. READ MORE

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"Due to your outstanding work, we have gained 42 new locations in 23 states within two years of expanding. I highly recommend Cencir for strategic planning and all aspects of channels of distribution development."
-Allen Hager, President, Right At Home, Omaha, NE
 
Our consultants have advised hundreds of companies of all sizes in most industries worldwide, including such brands as Commerce Clearing House, Cancer Treatment Centers of America, 3M, Pacific Bell, SealMaster, SkyTel, Sears, Henchy Industries, Hyatt Hotels, Ace Hardware, Beard & Warner, CBS, Stewart Warner, United Airlines, Northwest Orient, Coldwell Banker, Fidelity, Freuhauf Trailer, Buffalo Wild Wings, Budget Rent-A-Car, National Car Rental, Ryder Truck Rental, Chevron, Getty Oil, BP/Amoco, Mobil, Shell, Texaco Europe (Norway, Sweden, Denmark), St-Hubert BBQ (Canada), Pollo Campero (Guatemala), Helados Bon (Dominican Republic), Max’s (the Philippines), Nestle (Switzerland, Italy), Sonae Group/Orbitur Campgrounds (Portugal), The International Investor (Kuwait, England, Switzerland), Sushi Parties (Japan), L.O.G. (Norway).
 

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"Cencir's franchising experts made the difference in transforming C&O [Beard Papa's master franchisee] into a successful master franchisee. The principals at Cencir are seasoned veterans in a league of their own, high and above everyone else in their franchise expertise. They walked us through the franchise disclosure documents and difficult and sensitive negotiations that had little room for error. We accomplished more than our objectives."
-Luigi Cruz, Founder & CEO, C&O, Foster City, CA
  

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