\n<\/p>\n
\n\t\tOpinions expressed by Entrepreneur contributors are their own.\t<\/p>\n
Let\u2019s\u00a0face it.\u00a0There\u2019s\u00a0nothing\u00a0fun\u00a0or entertaining\u00a0about a Financial Disclosure Document\u00a0(FDD),\u00a0which\u00a0your prospective franchisor\u00a0is legally required to\u00a0provide,\u00a0so you will have full transparency into the deal\u00a0you\u2019re\u00a0considering.\u00a0It\u2019s\u00a0a contract,\u00a0with\u00a0page after page of\u00a0dry, densely composed\u00a0legal language\u00a0for your attorney to wade through and explain.\u00a0\u00a0<\/p>\n
Like all contracts, the FDD is a\u00a0roadmap\u00a0to the kind of business relationship\u00a0you\u00a0will have with\u00a0your franchisor.\u00a0Different areas are important to different people, but\u00a0there are some critical concerns\u00a0to look for\u00a0with your attorney.\u00a0They can\u00a0identify\u00a0potential red flags and explain the pros and cons, but\u00a0it\u2019s\u00a0up to you to ask the franchisor to clarify any provisions or questions until\u00a0you\u2019re\u00a0satisfied with the answers.\u00a0<\/p>\n
The length of the agreement\u00a0can tell you whether\u00a0you\u2019ll\u00a0have a\u00a0stable,\u00a0predictable\u00a0relationship or may have to deal with unexpected, unwanted\u00a0changes.\u00a0I\u00a0lean towards\u00a0a longer franchise agreement\u00a0that\u2019s\u00a0assignable\u00a0down the road, rather than a five-\u00a0or\u00a0ten-year\u00a0agreement. Five years go very quickly;\u00a0just as\u00a0you\u2019re\u00a0getting\u00a0your footing,\u00a0it\u2019s\u00a0time for a new agreement\u00a0with\u00a0any or every item changed,\u00a0including a higher royalty fee.\u00a0<\/p>\n
A longer agreement is better for\u00a0both parties. It\u00a0protects the\u00a0franchisee\u2019s investment and makes the franchisor more stable.\u00a0At\u00a0United Franchise Group, our\u00a0brands have agreements that are\u00a025 or even 35 years;\u00a0I\u2019m\u00a0glad\u00a0we\u2019re\u00a0not constantly renewing and renegotiating.\u00a0However,\u00a0make sure\u00a0you\u2019re\u00a0not locked into a decades-long\u00a0agreement without being able to transfer or sell\u00a0the business\u00a0if you wish.\u00a0<\/p>\n
The agreement should spell out exactly what products are offered and how much freedom you have to change them.\u00a0A successful brand is going to give you\u00a0very little\u00a0freedom, which you should know\u00a0long\u00a0before you even get to the FDD stage.\u00a0You\u2019d\u00a0be surprised at how many people have\u00a0tried to \u201ctweak\u201d things that go completely against\u00a0their\u00a0franchisor\u2019s\u00a0brand.\u00a0<\/p>\n
The brand, not the franchisee, determines things like the products you sell.\u00a0If\u00a0you\u00a0buy into\u00a0a burger\u00a0chain,\u00a0you\u2019ll\u00a0be selling hamburgers, not hot dogs. And if you try to\u00a0change the main menu,\u00a0you\u2019re\u00a0going to\u00a0have a problem.\u00a0Your franchisor is selling brand awareness and may have locations all over the world. Customers want and expect the same customer experience at every location.\u00a0<\/p>\n
The same goes for\u00a0things like\u00a0service\u00a0hours, employee uniforms\u00a0and\u00a0store design. A\u00a024-hour coffee\u00a0brand\u00a0won\u2019t\u00a0be happy if you decide to close on Sundays, change the\u00a0store\u2019s\u00a0colors, or otherwise\u00a0deviate\u00a0from\u00a0the brand profile.\u00a0<\/p>\n
Look at it this way:\u00a0You\u2019re\u00a0joining a club. This club\u00a0says,\u00a0here\u2019s\u00a0what we do and here\u00a0are\u00a0our rules. Your choice is whether you want to join that club or not. If you\u00a0want to change it,\u00a0what\u2019s\u00a0the point of joining it?\u00a0<\/p>\n
Now,\u00a0that\u00a0doesn\u2019t\u00a0mean a franchisee\u00a0can\u2019t\u00a0make suggestions that align with the brand. We\u00a0get our best ideas from our franchise\u00a0owners.\u00a0Talk to your franchisor about what procedures are\u00a0in place for accepting ideas from franchisees.\u00a0If\u00a0having input into the customer\u00a0experience\u00a0is important to\u00a0you,\u00a0be\u00a0sure\u00a0the agreement\u00a0makes\u00a0room for that.\u00a0<\/p>\n
Beyond the legal and financial issues spelled out in the FDD,\u00a0you are\u00a0entering a business\u00a0that\u2019s\u00a0all about relationships. The FDD\u00a0goes into a filing\u00a0cabinet,\u00a0and\u00a0we never\u00a0take it out.\u00a0In fact, we\u00a0pray\u00a0we will\u00a0never have to\u00a0use it, which would mean a\u00a0franchisee\u00a0relationship has\u00a0deteriorated\u00a0so badly we have to resort to legal actions.\u00a0<\/p>\n
To avoid that, we\u00a0build on our\u00a0relationships\u00a0and work with each other personally and help each\u00a0other\u00a0grow.\u00a0If you\u00a0provide ongoing training and support,\u00a0maintain\u00a0honest communication and stay abreast of how each franchisee is\u00a0operating,\u00a0you\u2019re\u00a0a lot less likely to need to pull the document out of the drawer.\u00a0<\/p>\n
Like any\u00a0other brand,\u00a0we have occasionally had a\u00a0store owner\u00a0depart\u00a0from\u00a0policies clearly\u00a0spelled out\u00a0by\u00a0the FDD. But I\u00a0don\u2019t\u00a0think\u00a0we\u2019ve\u00a0ever\u00a0handled it by\u00a0saying, \u201cWell,\u00a0look here. According to\u00a0page three,\u00a0paragraph four,\u00a0you\u2019re\u00a0supposed to\u00a0do this or that.\u201d Instead, we might\u00a0say, \u201cHere\u2019s\u00a0how\u00a0many of our best store owners do this.\u00a0We\u00a0have a proven way of doing\u00a0things,\u00a0but\u00a0you\u2019re\u00a0not following the program.\u00a0Is there a reason?\u00a0What\u2019s\u00a0stopping\u00a0you?\u201d\u00a0<\/p>\n
We do\u00a0a\u00a0lot of things that go\u00a0beyond the scope of the franchise agreement\u00a0while making sure\u00a0everyone adheres\u00a0to the formal\u00a0contract. The\u00a0FDD is just one\u00a0of\u00a0many tools that both sides\u00a0use\u00a0to assess each other.\u00a0Talking to other franchisees\u00a0is\u00a0also essential for the would-be franchisee.\u00a0\u00a0<\/p>\n
At the end of the day,\u00a0the FDD is an irreplaceable\u00a0part of the\u00a0franchise\u00a0process. Understanding it (with an attorney\u2019s guidance)\u00a0can help you learn whether you and the brand are a good fit.<\/p>\n<\/p><\/div>\n
Let\u2019s\u00a0face it.\u00a0There\u2019s\u00a0nothing\u00a0fun\u00a0or entertaining\u00a0about a Financial Disclosure Document\u00a0(FDD),\u00a0which\u00a0your prospective franchisor\u00a0is legally required to\u00a0provide,\u00a0so you will have full transparency into the deal\u00a0you\u2019re\u00a0considering.\u00a0It\u2019s\u00a0a contract,\u00a0with\u00a0page after page of\u00a0dry, densely composed\u00a0legal language\u00a0for your attorney to wade through and explain.\u00a0\u00a0<\/p>\n
Like all contracts, the FDD is a\u00a0roadmap\u00a0to the kind of business relationship\u00a0you\u00a0will have with\u00a0your franchisor.\u00a0Different areas are important to different people, but\u00a0there are some critical concerns\u00a0to look for\u00a0with your attorney.\u00a0They can\u00a0identify\u00a0potential red flags and explain the pros and cons, but\u00a0it\u2019s\u00a0up to you to ask the franchisor to clarify any provisions or questions until\u00a0you\u2019re\u00a0satisfied with the answers.\u00a0<\/p>\n
The length of the agreement\u00a0can tell you whether\u00a0you\u2019ll\u00a0have a\u00a0stable,\u00a0predictable\u00a0relationship or may have to deal with unexpected, unwanted\u00a0changes.\u00a0I\u00a0lean towards\u00a0a longer franchise agreement\u00a0that\u2019s\u00a0assignable\u00a0down the road, rather than a five-\u00a0or\u00a0ten-year\u00a0agreement. Five years go very quickly;\u00a0just as\u00a0you\u2019re\u00a0getting\u00a0your footing,\u00a0it\u2019s\u00a0time for a new agreement\u00a0with\u00a0any or every item changed,\u00a0including a higher royalty fee.\u00a0<\/p>\n<\/p><\/div>\n