I was recently on a panel answering questions about the franchise industry and what it is like to own a franchise. I took lots of notes and highlighted the questions that came up most. I thought it would be a good use of time to share the information and insights with you, in a short interview format.
The question I heard lots of confusion around is the idea of handbooks and support given by the franchise company for their owners to follow. Here is what I shared:
Franchise owners of a great franchise company receive extensive and in-depth training from the franchise company. It is all included with the fees in buying the franchise. Franchisees are given a handbook on how to run the business at initial training at the franchise company’s corporate headquarters. After initial training, there is usually ongoing training sessions that usually are given via webinar and/or on-line training portals on the franchise company’s intranet.
On the Franchisor side, there is no handbook or best practices written on how to operate a great franchise organization.
However, it's important to note that the franchise industry is heavily regulated by the Federal Trade Commission (FTC) of the United States government. Interestingly though, no laws or regulations exist that dictate benchmarks for a business to become a franchise. Simply said, any business can become a franchise. The regulations that are in place are supposed to protect the franchise buyer against possible scams. Thus, the majority of regulations only govern how franchise outfits sell their units.
The most significant FTC rule that franchise companies have to abide by is having a Franchise Disclosure Document (FDD). This document must be made available, free of charge, to anyone who is considering investing in a franchised unit. The FDD makes for transparency of the company. There are 23 items that have to be disclosed in the document. The FDD must contain information such as the exact costs to open and operate the concept, whether there is bankruptcy or any criminal convictions in the background of the principals of the franchise corporate offices. Any and all litigation, for the previous 10 years, against the company or perpetrated by the company must also be disclosed. In addition, a franchise must also list any units that have sold, transferred or failed in the previous two years. The FDD is very comprehensive and ominous. Because of that, I created a document that breaks down the FDD into five categories so it’s easier to digest and comprehend. You can get a free copy of the sheet at: https://info.tomscarda.com/the-franchise-disclosure-document. Because the buyer has all this information and data upfront, franchising in general, is one of the safest investments someone can make, in my opinion.
Stay tuned for more frequently asked questions about franchise ownership.