Buying a Franchise

The Disclosure vs. the Deal

One of the franchisee vs. franchisor battles in court right now has the usual suits and counter suits, claims by the franchise that the franchisee didn’t follow the rules and claims by the franchisee that the franchisor painted a rosier picture than they should have.

In among all the drama was a claim that stood out. The Franchise Disclosure Document, the franchisee claimed, gave a prediction about the profit margin franchisees could expect, but the salesmen said the franchisee “could easily make 25%.”

The sales process isn’t exactly like courtship, but there is an element of showmanship at the very least. Salespeople, in the heat of the moment, are likely to say things that make the business opportunity look good –maybe a little better than they would if they were being described dispassionately. They’re trained to notice your reactions and to respond to what you say with the purpose of making their offering as appealing to you as possible.

There’s also the very natural give and take of the sales process.

“What kind of profit do people make?” a prospective franchisee might ask.

The salesperson refers to the Franchise Disclosure Document, perhaps, and shares the official information there. The FDD must be supported by facts according to law.

The franchisee might, at this point, hesitate. He had been hoping, perhaps, for a higher profit margin. The salesperson, sensing this, hastens to add, “Of course, that’s the average. It’s up to you what you accomplish in your business. You have the right background and personality to really make this go!”

“Maybe 25%?” the prospect suggests.

“It’ll be easier for you to reach your goals with us than it would for a lot of people!” the salesperson says with a winning smile. “And it’ll be easier than it would be for you to hit that number on your own because of all the support we offer!”

The franchisee goes home convinced that the salesperson said he could easily make a 25% profit.

If you haven’t been on either side of this kind of conversation yet, you probably will be at some point. It’s not that the salesperson was lying, and it’s not that the prospect was trying to trick the salesperson into promising things he couldn’t deliver. It’s only when things go bad and accusations start flying that the courtship process comes up in what (to continue the metaphor) is basically divorce court for the franchise and the franchisee.

But the word “easily” is a clue. Opening and building a business isn’t easy. It’s a lot of hard work, and it involves risk. No legal document will say that success will come easily.

When you’re considering a franchise business opportunity, you can listen to all the blandishments of the salespeople and get caught up in the fun of getting to know the franchise. You can listen to your gut feelings on whether you and the franchise opportunity are a good fit or not. You can enjoy the courtship.

But the FDD is the place to look for accurate information.

Pending Request