Learn how to correct structural problems in your FDD to accelerate growth and strengthen your brand.
KEY TAKEAWAYS:
- Although it’s easy to blame external factors for stalled growth, make sure to evaluate your FDD for structural issues first.
- A strong FDD should build trust with candidates, align with your business model and be tailored to your offering.
- By fixing weaknesses in your FDD, you can strengthen your franchise sales process and support future growth.
As a new or emerging franchisor, selling franchises is critical for the long-term success of your brand.
Still, when it comes to stalled growth, it can sometimes be too easy to blame external factors. Before lambasting your marketing department, legal team or franchise developer for missed opportunities and lost sales, it’s important to evaluate your franchise disclosure document (FDD) and sales process for structural flaws and weaknesses – and to make the appropriate changes before they impact your brand’s scalability.
In this article, we’ll discuss five reasons why your FDD might be undermining your brand’s growth and explore strategies for getting your sales process on track before the new year.
1. Item 19 doesn’t build trust
A strong FDD should help prospective buyers understand the value of investing in your brand. Within your FDD, your Item 19 financial performance representations should also tell a compelling and accurate economic story about your franchise system while inspiring trust in prospective franchise buyers.
If your Item 19 disclosures instill doubt in your candidates, consider the following strategies for building trust when updating your FDD:
- Detail and clarity. Providing details about things like top- and bottom-performing franchisees – and the benchmarks that define those labels – alongside other relevant disclosures can help candidates understand your offering and expectations.
- Focal points. Providing deep-dive data about call center activity, customer acquisition costs or key performance indicators can encourage confidence in candidates.
- Storytelling. Your Item 19 should tell a story about your brand’s financial performance and help prospective buyers understand your offering’s return-on-investment potential.
By ensuring that your Item 19 disclosures build trust with prospective franchise buyers, you can strengthen your franchise sales process and build better relationships with candidates.
2. Territory structures don’t align with your franchise model
Proper territory planning is critical for the long-term growth and scalability of your brand. When the territory structures described in your FDD don’t align with your business model, it can lead to stalled growth and missed opportunities for scaling in the future.
To ensure that your territory structures align with your franchise model, consider the following:
- Equitable territories. Invest in mapping software to create a franchise territory map that is divided equitably based on demographics, neighborhoods, and other variables.
- Correlation to the FDD. When developing territories, it’s critical to ensure they have a direct correlation to what is articulated in the FDD.
- Multiple territories. Instead of offering large territories upfront, consider implementing smaller multi-territory structures to support growth and create incentives for high-performing franchisees.
By aligning your territory structure with your franchise model, you can ensure that your FDD accurately reflects the economic opportunities your brand offers.
3. Fees and financial model aren’t realistic
Franchise fees and royalties generate important recurring revenue to support your brand’s growth and development. Unfortunately, it’s common for new and emerging franchisors to rely on generic fee models that aren’t aligned with their franchisees’ actual profits or the level of support they offer to franchisees.
To ensure that your fees and financial model align with reality, consider the following:
- Opportunity. Whether your brand offers income replacement opportunities or part-time supplemental income, be upfront about its opportunities, investments and expenses.
- Set realistic expectations. The unit economics, fees and financial model described in your FDD should align with your brand’s actual unit economics and opportunity profile.
- Avoid generic fees. Royalties, fees and other expenses paid by franchisees should make sense compared to the support they receive and their business’ actual revenue.
By ensuring that your franchise fees and unit economics are both reasonable and realistic, you can competitively position your FDD and differentiate your offering from competitors.
4. Generic FDD with hidden structural flaws
Because the FDD is an important mandatory legal document, franchisors should be wary of the generic, and sometimes structurally flawed, FDDs that are often included in consulting packages. To ensure compliance with federal regulations, it’s best to work with a franchise lawyer to draft an FDD specifically for your brand.
To ensure that your FDD’s structure aligns with your business model, consider the following:
- Compliance. The FDD is a legal document that is regulated by the Federal Trade Commission, and its disclosures must comply with federal franchise laws.
- Structure. Templated FDDs are sometimes structured in ways that don’t align with a brand’s actual business model. To avoid exposing your brand to legal risks, work with a franchise attorney to draft a custom FDD.
- Durability. The FDD should be reviewed and updated by your legal team and drafted in a way that provides legal protection for your brand as it grows.
By working with an experienced franchise attorney to draft a custom FDD that’s structured around your offering, you can protect your brand and ensure regulatory compliance.
5. FDD doesn’t support the sales process
After years of selling a product or service to consumers, it can be challenging for new franchisors to switch gears and start selling franchises. By using the FDD as a tool to create a consistent franchise sales process, you can gain perspective on what you’re selling – and what prospective franchisees want to invest in.
To ensure that your FDD supports your franchise sales process, consider the following:
- Alignment. Review your FDD and build out a sales process that mirrors the information it provides to prospective buyers.
- Education. Make sure your sales team understands your FDD and how each disclosure item applies to franchisee candidates – especially Item 19, Item 7 and local marketing spend.
- Compliance. Inform your sales team about regulations governing financial performance representations and other disclosures during the franchise sales process.
By aligning your FDD with your sales process, you can strengthen your brand while creating a more cohesive experience for prospective buyers.
Recap
Selling franchises is a critical part of scaling your brand. By addressing gaps in your FDD that could undermine growth, you can avoid missed opportunities and bolster your franchise sales process.
To optimize your FDD, it’s important to develop an Item 19 that builds trust with candidates. Creating territory structures that align with your franchise model, establishing realistic fees and royalties, and ensuring that your FDD supports your franchise sales process can also be helpful.
Finally, it’s critical to work with an experienced franchise attorney to create an original FDD that is structured around your business model to protect your brand and ensure compliance with state and federal franchise laws.
Watch the full webinar below:
Frequently Asked Questions
Because an FDD should help prospective franchisees set realistic expectations about a franchise offering, it’s critical for the document’s contents and structure to align with the brand’s real-world business model and opportunity profile.
Compared to generic FDD templates, custom FDDs typically offer superior legal protection and compliance. Because original FDDs are created for specific brands, their structure is aligned with that brand’s business model, which can limit exposure to legal risks.
To optimize their FDD for growth, franchisors should avoid generic templates and ensure that their brand’s Item 19 disclosures build trust with candidates, their territory structures align with their franchise model, their fees and royalties are reasonable and their FDD supports the sales process.
