“Your business is approaching the time when you should have a trusted advisor or advisory board of directors to keep you on track.” My business mentor told me this in my early days of working in a startup business.

The advice remains relevant today. When you approach a time when you are considering adding franchising to your business model, or a new product line, you should choose a trusted advisor who can keep you on track to reach your business goals. Outside advisors do not come with any agenda or prejudice linked to the company’s origin. They will bring skills, experience, and a clear perspective to your business and help you reach your next company milestone.

When you choose an advisor you must ask yourself, what is missing with my team? Would it help to have more input in marketing, merchandising, technology or finance? Should I seek advisors in other industries who faced and overcame obstacles similar to my own?

My company, Paper Warehouse, added its advisory board in 1991 as we proceeded on a very rapid growth plan. We increased our store count from the original four stores of 1986 to fifty-six with an approximate volume of $60.0 million plus 23 franchise stores operating in 12 states in 1995. I remembered my mentor’s advice, it was time. I added a trusted advisor.

With my advisor and advisory board, we analyzed my situation. We concluded that my team did not know everything that was needed to expand. If I wanted to quickly and strategically move into franchising, I needed to be smart about it. We did not have a complete operation manual. Our store layout needed improvements. We did not have a specific look or niche to give us the punch we needed to attract potential buyers of our franchise product.

An advisor will help you move your business to the next level. Your advisor will help you determine the members of your advisory board. He or she will help you select people who can add in-house experience and expertise. Your advisor will enhance corporate self-discipline and accountability and will help you with your strategic planning process. The addition of an advisor and an advisory board should not be considered an expense; it is an investment in your business.


*Yale Dolginow is President of Elanstrategic llc, which provides strategic, execution, transition, and exit advisory services. Yale has a BA, MBA, and has attended Harvard Business School’s OPM Program. He is originally from Kansas City where he was President and CEO of Dolgin’s Inc., a jewelry and general merchandise company, which he grew from one store to seven before selling it to Modern Merchandise of MN. In addition, he was with Dayton Hudson Corporation as Asst. to President, CEO of Carlson Catalog Showroom for five years, and founder of Paper Warehouse, which was sold in 2002.

The possibility that a franchisor could be pulled into a claim or lawsuit originating from a franchisee’s location continues to grow and evolve. This vicarious liability exposure is an increasing risk that franchisors need to know about and manage.

From an insurance standpoint, we’re frequently asked for the best practices on how to mitigate and reduce this exposure. While there isn’t one magic elixir to eliminate a franchisor’s potential vicarious liability exposure, there are some steps every franchise system should take to reduce this risk.

  • Start with properly written insurance requirements in the franchise disclosure document (FDD).
  • Manage system-wide compliance on FDD requirements. Maintaining franchisee compliance with the correct insurance requirements is increasingly important in protecting the brand and reducing potential exposure.

The challenges for many franchisors are determining what insurance requirements they need and, once they are written, effectively enforcing them. Obviously there’s nothing to enforce until your franchisee insurance requirements are drafted.

Five tips for Developing Requirements

  1. Have your FDD insurance requirements reviewed by an insurance broker who knows and understands the franchise industry. Too often I see FDD language that is boilerplate, vague, incorrect, or all of the above. The boilerplate language does not address your specific risks.
  2. Tailor the insurance requirements around the products and services your franchisees deliver and sell, not what you do as the franchisor. Are your franchisees working in homes, driving cars, working in a restaurant or handling client data? The insurance requirements need to be specific to those products and services performed and delivered by your franchisees.
  3. General liability insurance does not cover everything. Contrary to its name, your general liability (GL) policy has limitations. GL primarily covers bodily injury and property damage and can include coverage for personal/advertising injury and products and completed operations. It does NOT cover harassment, discrimination, wrongful termination claims, data privacy issues, third-party crime against clients, professional liability for services performed and many other scenarios. Too many franchise owners miss this point and don’t understand until they have filed a claim that they are not adequately covered under a standard GL policy.
  4. Additional insured (AI) status is important and should be tracked. This is the first and best step franchisors can take to limit their vicarious liability exposure. AI status is often the first thing that gets overlooked as franchisees’ policies renew each year. To have coverage extended to the franchisor under the terms of a franchisee’s policy, the franchisor must be listed as an additional insured or you can end up paying out-of-pocket.
  5. Collect franchisees’ certificates of insurance (COI): It’s a thankless job but one that needs to be done. A system should be put in place to collect COIs today and each year upon renewal. You can’t manage this process without collecting certificates.

While not as exciting as a new advertising strategy or product roll-out, a well-designed and managed insurance program is extremely important in helping you reduce risks to you and your franchise system. Reducing potential vicarious liability exposure, providing proper guidance, and maintaining consistent brand standards will enable you and your franchisees to focus on growing your business. And that, after all, is exciting.


Doug Imholte is a Franchise Risk Management Practice Leader at Marsh & McLennan Agency in Minneapolis. Contact him to learn more about insurance for franchisors.