The FDD - One Size Never Fits All
By Michael J. Childs
Every brand has a story to tell. The better you can tell your story, the better you position your brand and the more franchises you will sell.
But there’s something else that is at least as important as your story. The Franchise Disclosure Document, or FDD for short.
When I say the FDD, I mean all of the legal documents such as the Franchise Agreement and other agreements that go with it.
The story of your brand is what you are selling, but it’s the FDD and other documents that help prospects understand what they are buying.
The School of Hard Knocks
I bet if there were a contest for learning things the hard way I would win. And sure enough, way back in the late 80s, my first attempt at franchising was a monumental failure.
Not because the concept wasn’t right. It was. It had all the components to be a roaring success; great profit margins, needed service, not much competition, federally registered logo, great story and presence, a very successful concept store, and I was well capitalized.
With all that going for me, what happened?
I made the same mistake that so many startup franchisors continue to make today, some 30+ years later. I used generic legal documents from an established franchise offering similar to mine, thinking that was all I needed to be successful selling franchises.
What I ended up with was an FDD and Franchise Agreement that was complex and full of one-sided legalese gobbledygook suited for an established franchise, not a startup like mine. The fees were so high and complicated. I had one prospect ask me; “if all I wanted to do was milk my franchisees like cows.” Ouch.
That was the beginning of my quest to use plain language that both my buyers and I could understand. Working with a qualified franchise attorney, we changed the legalese gobbledygook, rigid tone, and high fees in the FDD and Franchise Agreement.
With my new, friendlier, easy to read legal documents, I relaunched the AirChek® franchise offering and started selling franchises.
If You Can't Read This, You Better Read This
Sometimes I think people make things complicated because they think it adds value. Other times I feel like Mr. Einstein above that maybe they just don’t know what they are doing, so they try and baffle you with big words.
The FDD, which is a legal document but not a contract, has a Federal Trade Commission (FTC) requirement to be written in plain English, but not the Franchise Agreement. The purpose of the FDD is to explain the Franchise Agreement, which is usually written in legalese, to your buyer.
There’s a good reason for so much legalese and generic boilerplate in franchise documents. It is much easier to copy someone else’s work than to write original, understandable plain English.
Writing or converting legalese to plain English is hard work, but well worth the effort.
The Template Mentality Trap
Unfortunately, in the franchise industry, the one-size-fits-all Template Mentality is still alive and well. The legal documents are so similar, it makes it tempting to use someone else’s work and just make a few changes, like the name of the business, fees, and dates for example. I see it all the time.
Some attorneys, document mills, and even high-priced, do-it-all franchise development shops do it, churning out documents that many times have nothing to do with your franchise offering. I’ve read Franchise Agreements for service businesses that have pages of restaurant sanitation requirements left in by mistake!
You may know this already, but there are companies on the Internet that will sell you an FDD and Franchise Agreement template for a few hundred bucks. This is Template Mentality taken to the extreme. What you get will be generic, legalese gobbledygook with a lot of drafting needed and blanks to fill. To me, it seems harder than starting from scratch.
Even if you try the template route, which I don’t recommend you do, you must still hire a franchise attorney to review the documents or rewrite them. The attorneys that “approve” the templates for the template companies work for them, not you.
There has also been litigation when non-lawyers draft franchise legal documents, with some pretty hefty jury awards for those that were damaged by the defective documents, such as franchisees, even when they were “approved” by an attorney.
The bottom line is that your franchise offering is different and unique and your legal documents should reflect that.
If you want to sell a lot of franchises and stay out of legal trouble, your Franchise Disclosure Document and Franchise Agreement need to be written from scratch by a qualified franchise attorney you are working closely with.
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