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, great logo, story and presence, very successful concept store, well capitalized and so on.
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 went straight to an attorney who 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 everyday, simple English that both my buyers and I could understand. After I finished rewriting the legalese gobbledygook and changed the stiff tone of the 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.
Attorneys write complex, lengthy documents because they were never taught to write plain English.
Even the FDD, which is a legal document but not a contract per se, has an FTC requirement to be written in plain English. Its purpose is to explain the Franchise Agreement to your buyer. But most attorneys draft the FDD like a contract using complex, legalese gobbledygook to explain the complex, legalese gobbledygook in the Franchise Agreement. It's easy to see why buyers give up.
There’s a good reason there’s so much 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 to plain English is hard work.
OK, enough. Below are a couple of examples. Not all legalese can be boiled down to a sentence like these examples, but it’s easy to see how much easier it is to read and understand plain English. Try it yourself. If you practice, you can do it too.
This first one is a simple assignment provision that shows up one way or the other in all franchise agreements.
(a) This Agreement and all rights and duties may be freely assigned or transferred by us in our sole discretion without your consent, in whole or in part, to any person or legal entity that agrees to assume our obligations in this Agreement, including a competitor of ours, provided the transferee has sufficient business experience, aptitude and financial resources to competently assume our obligations under this Agreement, and will be binding upon and benefits our successors and assigns including any entity which acquires all or a portion of the capital stock of us or any entity resulting from or participating in a merger, consolidation or reorganization in which we are involved, and to which our rights and duties in this Agreement (in whole or in part), are assigned or transferred. Upon assignment or transfer we will no longer be liable for fulfilling the franchisor’s obligations from that point forward. (Huh?)
Plain English Conversion
(a) We have the right to sell or assign, in whole or in part, our interest in this Agreement.
I call this next one the franchisee troublemaker provision.
(f) If after the Franchise Agreement is signed by the parties: (i) you request any waiver of any right of ours; (ii) our consent to any action of yours; or (iii) any letter, or notice of default or notice of termination sent to you, if we retain our attorneys to advise us or to take action, you agree to reimburse us for our attorneys’ fees and costs. You will also reimburse us $1,500 for our attorney’s fees in connection with the closing of the purchase of the Franchise (or $2,000 if an Area Development Agreement is also signed); $2,000 for our attorney’s fees in connection with the sale of the Franchise Business; and $500 for our attorney’s fees in connection with the renewal of the franchise relationship. (Huh?)
Plain English Conversion
(f) If you cause us to pay an attorney to enforce or uphold any of our rights under this Agreement, you agree to reimburse us for our reasonable attorneys’ fees and costs.
The Template Mentality Trap
In the franchise industry, the one-size-fits-all Template Mentality is alive and well. The FTC required documents are so similar it makes it easy 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.
Attorneys, document mills, and even some 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 lots of blanks for you to complete.
If that’s all you have in your franchise development budget, I suggest saving your money.
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