2024’s Top Franchise Legal Players: Mark Kirsch, Lathrop GPM

Honoree: Mark Kirsch

Role: Franchise Law Partner, Lathrop GPM

Mark Kirsch is a seasoned expert in domestic and international franchising and distribution law, with a focus on transactional and regulatory matters, mergers and acquisitions, and dispute resolution. He works with a diverse array of clients, from large multinational chains to emerging businesses, across various industries such as restaurants, hospitality, healthcare, manufacturing and retail. Kirsch’s extensive experience includes developing and structuring franchise and distribution systems, drafting and negotiating various agreements, and ensuring compliance with regulatory issues. He has played significant roles in numerous corporate transactions, particularly private equity-backed deals, involving franchise systems. 

1851 Franchise recently spoke with Kirsch to find out more about his experience in the franchise legal field and for some insights into strategies franchisors can use to navigate legal challenges effectively.

1851 Franchise: What do you see as the most important things franchisors should do to protect their brand?

Mark Kirsch: A franchise “brand” is multifaceted, and it is more than just the trademark or the business name over the door. While the brand is owned by the business — or in this case the franchisor — as a practical matter, a brand is really the public’s feelings and perceptions about the business and the products/services sold. It is owned by the franchisor but lives in the minds of the franchise system’s customers. So, protecting the brand includes both defensive moves and offensive actions to grow and enhance the reputation of the brand. That involves the franchisor and the franchisees. Protection starts with the legal steps to police the uses of the marks by franchisees and third parties, and taking actions to stop improper uses or the sale of products and services that tarnish the brand image and reputation. This is why adherence to brand standards is so critical to the franchise system. But beyond protection, franchisors should always be focused on unit economics and the profitable operations of their franchisees.  By helping franchisees thrive — in terms of sales, revenue, positive customer experiences, advertising and marketing, and new product development — franchisors enhance the public perception of the brand. 

1851: How important is the information in Item 19?

Kirsch: Financial performance representations (or FPRs, formerly known as “earnings claims”) — which are synonymous with Item 19 — are absolutely critical for both franchisees and franchisors. Why? FPRs are the beginning of the answer to every franchisee’s question “How much can I make from this franchise?” It is the beginning because the FPR is not a complete answer.  Franchisees should use this information as part of their diligence of the franchise opportunity. They should, along with their legal and financial advisor (and it is critical to have a franchise lawyer and accountant on the franchisee team), understand what is being stated and what is not included.  Each franchised business within a system is different, and franchisees can use this information to ask questions of the franchisor and other franchisees, and begin to build their own potential economic model.

FPRs are critical for the franchisor because they provide a consistent message to prospective franchisees to begin to answer the franchisees’ questions about potential profitability.  Also, by providing a written FPR, it provides a sort of script for the franchise development team to work from and reduces the likelihood of franchise development personnel providing unauthorized financial information. Franchisors need not provide an FPR, but if they do, it must follow precise rules and guidelines. However, the form or the type of information is not dictated. Therefore, a franchisor can provide the type of information that it believes its prospective franchisees need and desire. This also allows for creativity (but not fantasy numbers!). 

For example, while top line gross sales figures, with system wide averages are typical, brands can be more specific, such as “RevPAR” (revenue per available room) for hotels; or a hair salon may provide “average revenue per chair” to account for different size salons; or a restaurant franchisor may provide data for revenue, as well as costs as a percentage of revenue for food, paper and labor costs, which are the most critical costs for that business (outside of rent/occupancy costs which can vary widely be geography). Finally, by providing an FPR in Item 19, the franchisor is granted some additional leeway under the law to provide additional geographically-specific or situationally-specific financial information (called supplemental FPRs) in response to prospective franchisee requests.  

1851: What is the single largest legal mistake brands make?

Kirsch: There are a few mistakes that franchisors sometimes make that are a combination of operational and legal issues.  

The first is not policing and enforcing system and brand standards. By allowing a few deviations from the standards, these small matters can snowball, and then it makes it more challenging to enforce them in the future in terms of franchise relations, legal costs and diversion of resources.

Second, franchisors should build into their agreements the flexibility to make changes and allow the system to evolve due to changes in technology, customer preferences and other marketplace issues. The lack of flexibility can hinder growth and change without significant costs and at the risk of creating negative franchisee relations. Of course, finding the right balance between flexibility and unfettered changes is critical.

A third issue (and mistake), which applies more to start-up and emerging brands than to mature systems, is the willingness to deviate from contract requirements and permit significant negotiated changes and/or deviating from the desired new franchisee profiles to sign up less-than-stellar franchisees. Oftentimes these sweetheart deals — or signing a new franchisee who may not have the right or best mix of knowledge, experience, personality or capital — are done to meet an arbitrary franchise sales goal.  And while that may seem good at the time to add new franchises to the system, it may backfire in the future. 

1851: How do you stand out as a franchise law firm?

Kirsch: BREADTH AND DEPTH. We are a full-service firm, not a boutique, so we can serve all of the legal needs of our franchise clients. Within the franchising realm, we serve our clients’ needs in areas including registrations and compliance, mergers and acquisitions, international expansion (both into the U.S. from abroad and from the U.S. outward), U.S. and international litigation and dispute resolution, intellectual property, data security and privacy, technology, and reorganization and bankruptcy. We also have lawyers who focus in other areas that support our franchisor and master franchisee clients, including employment, tax, real estate, trusts and estates planning, environmental law, insurance recovery and health law. 

We have offices across the country and access to international experts in 90 law firms across 100 countries around the globe, thanks to our membership in Multilaw. 

INDUSTRY LEADERSHIP. Our team members hold leadership positions in organizations that shape the future of franchising, including the International Franchise Association, the American Bar Association Forum on Franchising and several other organizations. We also have provided input to groups including the Federal Trade Commission and the U.S. Small Business Administration. 

COMMITMENT TO DIVERSITY, EQUITY AND INCLUSION. We have made a multi-year commitment as a founding partner with the International Franchise Association on their Ascension Initiative, which aims to diversify the franchise world through outreach to underrepresented groups and economically disadvantaged communities.

COLLEGIALITY AND TEAMWORK (AND FUN!). Many law firms tout their cooperative attitude and teamwork. So does Lathrop GPM. But, as a 35-plus year franchise attorney, with experience in firms and practice groups of various sizes, I see that with Lathrop GPM it is really true. I experience every day how our franchise team operates as a team and thoroughly enjoys working with each other and our clients. And when that happens, clients can see it and see the difference in the legal advice and superior service that we deliver. We do have fun as a team! 

1851: What is the best business advice you have received in your career?

Kirsch: I’ve received a lot of good advice over the years — from lawyers and mentors, business people, clients, friends and family. I can’t pick one as the best. So, a few are:

Treat every client as if they are the most important client you have, and their problems and issues are as important to you as they are to them. Along with that advice is to be uber-responsive.

Listen, listen and listen some more.

Surround yourself with good, smart people, and then rely on them for their knowledge, expertise and teamwork.

It’s okay to say you don’t know something, but you will find the answer and get back to them. I learned a long time ago that being smart is not knowing all of the answers, but knowing where and how to find the answers.

Be kind, polite and respectful to everyone, regardless of position, station or relationship to you, your business or your goals.

Every great franchisee had help buying a franchise. Want to learn more about how 1851 helps franchisees find the right franchise opportunity? Visit www.1851growthclub.com and start your journey.