Jack and Diane* have had a tough time deciding whether to lease
or own their new oil-change location and are about to start
building on a piece of land. What have they learned so far about
determining, and then insisting on, the level of assistance they
deserve as franchisees?
Pragmatically speaking, franchise attorneys attempt to limit the
scope of their franchisor clients' contractual obligations. The
theory is that it's better to deliver more, not less, than you
are contractually obligated to provide. If franchisors promise the
moon and then don't deliver, an upset franchisee might have
grounds for termination of the license or other legal remedies.
On the other end, though, the franchisor's involvement can
be disappointing. While their franchisor has been helpful at times,
overall Jack does not feel he's received the support he
expected. "I'd get periodic calls from the guy in charge
of selling franchises. He wanted me to hurry up and find a site.
Actually, he wanted to sell me an area development agreement, which
would give me the rights to a territory but would also cost me a
lot more money. I told him that if I couldn't find a good
location, I certainly wasn't eager to sign up for more than
that. I didn't hear from him much after that," says
Jack.
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Federal law requires franchisors to list the obligations
they'll meet prior to opening your franchise as well as during
the operation of the business. This information can be found in
Item 11 of the Uniform Franchise Offering Circular. Be aware there
are some tricks savvy prospective franchise buyers can employ to
determine the erstwhile intentions of their franchisor. One
important mandate of the federal law pertaining to Item 11 requires
franchisors to set forth the table of contents to the manuals,
including the number of pages on each subject, and disclose the
subjects covered during training. A close review tells you where
there are gaps in the information provided.
Preparing a business manual and training is a very tedious,
expensive and lengthy process. Most franchisors proclaim they have
a comprehensive training program, but the quality of these programs
varies widely. Take accounting, for example. A franchisor who's
light on cash flow or who doesn't want to put in the effort may
provide a simple statement: "You need to use an approved
computerized accounting program." Gee, that's helpful. On
the other hand, the manual could be more specific, stating
"Intuit's QuickBooks is the required accounting program.
If you don't know how to use QuickBooks, you should take a
class at a local community college." That education is
tantamount to a hidden expense. By comparison, the best systems
will tell you something like "We will provide you with one
copy of QuickBooks as well as a prepared computer template to use
at your franchise location. In addition, we will provide you with
two complete days of training."
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Remember, there's no law regarding the quality or scope of
training. Just because someone has a great concept does not mean he
or she has the skills to teach others. You need to consider what
operational challenges exist for your business and make sure they
are addressed in sufficient detail.
In the case of Jack and Diane's store development manual, I
noticed the franchisor failed to make the requisite legal
disclosure of how many pages were devoted to each subject. The
attorney in me wonders whether this oversight is the result of
negligence, or whether the franchisor is trying to hide the fact
that there isn't much help with respect to developing a
location. Jack's questions to me indicate a tremendous amount
of detail is lacking in this area, which may explain, in part, why
it has taken so many months to get a store open.
This situation reminds me of the pile of mud that's been
accumulating under the eave outside my kitchen window. Within the
pile sit five newly hatched cliff swallows. With each visit from
the parents, some of the babies force themselves to the middle of
the nest and squawk the loudest, and those are the ones growing the
fastest. The timid birds are now runts. The point is that a
franchisee is entitled to make noise when he or she needs help from
the franchisor. Adroit franchisees instantly call for support so
they can leverage their time by drawing on the experience of those
who've already been through their pain.
Jack is learning. Recently, he spoke with his franchisor while
trying to determine the fairness of the build-to-suit lease he was
about to negotiate. The franchisor delivered a revelation: The
franchise was creating a modular prefabricated building that could
eliminate a great deal of cost-a potential benefit that isn't
part of the contract. Keep those communication lines open,
Jack.
*The franchisees' names have been changed.
Todd D. Maddocks is a franchise attorney and small-business
consultant who is founder of Franchisedecision.com. You can reach him at
yourcounsel@attbi.com.