10 Things I Hate About Your Franchise Disclosure Document
Listen up, franchisors. Craft a winning disclosure document by avoiding these pitfalls.
Ah, the Franchise Disclosure Document. Done right, it can be a thing of beauty (really!): a document that lays out plainly almost every fact potential franchisees need to know about a given franchise--history, litigation, costs, unit numbers, financials and more. Unfortunately, if the last few months spent poring over nearly 800 of these documents for the Franchise 500® has taught me anything, it's that they're not all done right. Here are a few pet peeves.
1. Dead trees
For years, franchisors clamored for Entrepreneur to accept FDDs electronically. Now that we not only allow but also encourage electronic submissions, everyone wants to send hard copies. Not having an electronic FDD isn't quite as grievous a digital-age sin as not having a website, but it does place you firmly behind the times. And don't even think about using obscure, ancient or bulky file formats. PDF and .doc are your friends.
2. Cover me
No publisher would sell a book without a cover or forget to include the title, author's name or price on said cover. The FDD cover page serves the same purpose as a book cover; it offers a brief synopsis of who the franchisor is, its contact information and the cost of the franchise. Yet some of you leave the cover page off entirely or fail to include all of the information required, which brings us to …
3. Can't get a date
A required item on the cover page is the FDD's issuance date, which tells readers at a glance whether the info within is current or out of date. There are other ways to tell (check the dates in Item 20 or on the audited financials), but failing to clearly display the issuance date gives the impression that you're either hiding something or are simply neglectful.
4. Still can't get a date
One of the key things I expect to learn from Item 1 is when the franchisor started doing business and when it started franchising. But some of you mysteriously leave out this info, while others disclose a history so convoluted that it's tough to find the answer. Either way, future franchisees are left in the dark as to how much experience you have.
5. Mad Libs
Every now and then I'll open an FDD and read something like "The Franchisor, company name, was incorporated in month year to offer type of business franchises…"Yikes. If you must use a do-it-yourself template to create your FDD, at least make sure you fill it in completely. Better yet, hire a franchise attorney who can help you create a professional document.
6. Money woes
Item 5 discloses the all-important franchise fee. Usually, it's pretty straightforward, a sort of one-fee-fits-all. Occasionally, it varies based on factors such as territory size or franchisee experience. But I've seen Item 5s with formulas so complicated they make tax returns look like first-grade math. Keep it simple. The last place you want to confuse franchisees is the section that says how much they pay you, right?
7. Identity crisis
While we're on the subject of not wanting to confuse, please call them franchisees. Referring to them as dealers, licensees, associates, affiliates, partners, special friends who pay you royalties, or anything other than franchisees just causes unnecessary uncertainty. You're selling a franchise. Wear it proudly.
8. Item 20 questions
Item 20 is arguably one of the most valuable parts of any FDD--and the most frequently abused. What should be a wealth of statistical information on unit openings, transfers and closures is all too often next to useless thanks to out-of-date info, missing data tables, empty tables and more.
9. Invisible exhibits
Items 1 through 23 may be the "meat"of an FDD, but the side dishes that follow are equally important, especially the audited financial statements and list of franchisees. There's nothing like coming to a page that says "Exhibit D: Financial Statements,"flipping to the next page and seeing … "Exhibit E."Unless you're a new franchisor with literallynothing to show, there's no excuse not to include these items.
10. Fonts of wisdom
No, Comic Sansis not an acceptable font for a legal document. 'Nuff said.
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