Friday, August 12, 2016

Franchise Disclosure Document Dissected - Part Three

We pick-up our observations about the Franchise Disclosure Document (FDD) with Item 11 - Franchisor's Assistance. If you missed Part One or Part Two, you can click on the hyperlinked text. 

Item 11 is the most comprehensive in the FDD - and an important one for both sides of the franchise equation. Just a few insights here on some of the topics covered in Item 11:

Operations Manual - nearly every franchise system has an operations manual. The manual is the "bible" for the operating system - operational requirements are enforced through the franchise agreement. Item 11 mandates two alternative disclosures regarding the manual: either the Table of Contents must be provided OR the buyer must be given the opportunity to review the manual before purchasing. Few franchisors offer the opportunity for review and only provide the Table of Contents. TOC's are typically generic and offer little insight into the manual. Few franchise-buyers go further and rely on a cursory TOC review. This is an important piece! Franchise-buyers should request access to the manual and serious franchise systems should grant greater access (protected by a non-disclosure) before the sale. Little is gained by looking at the TOC.

Training - another important item is training. Item 11 discloses the Training Program in a Table format, covering the subject, hours in the classroom and on-the-job, and the training location. A generalized description of the program is usually offered and the instructional materials, along with the instructors' experience. Here is the observation: many times franchisors do not fully disclose required information about the instructors. It is not acceptable to simply refer back to Item 2 ("Business Experience" of the main officers). The name of each instructor and their length of experience "in the field" and with the franchise system is required. So franchisors, be proactive and offer the full information; franchise-buyers, make sure you get all the information.

Time Limit to Open - Item 11 discusses the amount of time franchise buyers will have to secure a lease and open the business. Everyone is interested in opening as soon as possible. But, some of the time-frames are too short, too unrealistic. In some markets getting a lease alone can take 6-12 months. This is really a negotiating point for the franchise agreement - seek to expand the deadline. Most franchisors are flexible on this point ... because they realize it may well take more time than they estimate.

Hopefully, one more part upcoming to finish the dissection!

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