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Mistake #1 When Franchising Your Business: Not Understanding Your FDD

Date: 02/04/2014 | Category: Start a Franchise | No comments

[Multi-Part Blog Series: In this multi-part series we will discuss some of the mistakes that start-up franchisors make. By the way there is no particular order to the mistakes that we will be discussing]

Most Common Mistake #1: A Generic Cut and Paste FDD That Makes No Sense for Your Business 

So‚ this common mistake comes to mind since this morning I had a meeting with a franchisor in its second year of operation. You see‚ they started selling franchises last year and they were looking for assistance with a potantial "expansion issue" that they are presently experiencing and a potential franchisee dispute. Unfortunately we were unable to accept this franchisor as a client but the discussions that we had brought to mind the fact that far too many franchisors treat their FDD development as an after thought or they rely on certain developers who are not lawyers and who prepare a generic cut and paste document.

Franchise Development Factors to Consider

Without getting into any specifics about a particular situation‚ lets discuss some important factors that you need to consider and use in‚ hopefully‚ avoiding this mistake:

  • Your FDD Will Serve As a Foundation and Blueprint for Your New Franchise Business – By franchising your business you are starting a new business and will now be a franchisor. Your FDD will set forth the blueprint for your new franchise system and will address "foundational issues" including what your franchise business is all about‚ how you will identify territories‚ exclusivity that may or may not be afforded and how the supply chain will work.  There is more but the point here  is to understand that the FDD is not just some fill in the blank process – real thought and a thorough understanding of how your new franchistem will grow and operate is required. 
  • You Must Participate in the Development Process – If someone offers you a simple solution then – like everything else in life – proceed with caution. When franchising your business you get what you put into it and if you are not actively involved in this process then there is something wrong – very wrong. That is franchising your business is not a process where you just pay money and sit back and wait for someone to just hand you some "forms".
  • You Need a Trusted Advisor – Sounds self-serving? Well let me speak to you as a franchisor (in addition to being a franchise lawyer‚ I am also the managing member of a small franchise company). Look‚ in business success requires that you rely on the right people and in certain instances (including franchised expansion) you need to rely on an "advisor" and not a "salesman". Your franchise advisor (in my opinion) not only needs to be a franchise lawyer with experience in establishing and expanding franchise systems but‚ also‚ someone who has an understanding of your business and your business goals.

Remember it is the small things that make a difference and far too many start-up franchisors fall victim to unnecessary problems that are‚ more often than not‚ rooted in the original franchise development process. So‚ if you take short-cuts be prepared for some discomfort down the line.

By the way I ran into one would be franchisor who never "launched". So we met and he explained to me that he got his FDD developed for free and according to him he won a contest with a franchise development company. Well‚ the FDD was an empty shell‚ never completed and resulted in this would be franchisor losing over two years. So‚ this "free FDD" cost this company an over 2 year delay and guess what…their competitor launched their franchise over 12 months ago.

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