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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.
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."
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.