We are considering a franchise and we are requesting a FDD. The franchisor will not release it before we actually meet their team. What do we do?
We are exploring a franchise and we have been taking conference calls over a series of weeks now - we are scheduled to meet them by flying down to Houston this month, but they won't release their FDD. Our accountant says they are supposed to release this document (laws changed in 2008 where any franchisor is required to release this when a "reasonable request" is made) and we have made a reasonable request. What should we do?
We need to run the numbers and speak to franchisees and we can't do that until we have FDD.
If they won't release it without a NDA Find some other company. It seems they are too concerned about the sales presentation. Maybe because the facts disclosed don't look good.
Consider a different franchise.
And remember, as a franchisee, you will at best earn something equal to a well-paying job - unless you leverage multiple licenses, become a district manager, or the like..
Good answers have already been laid out. I'd tell them straight out -- "Either I get the NDD or I walk -- right now." If they don't give you the NDD, then walk, you'll save yourself a lot of grief. You should also have your attorney review the NDD -- not just your accountant. Also, consider exactly what this franchisor is committed to provide to help you succeed. If it's just a name and line of products, then bail right now. If they offer significant training, advertising, promotional opportunities, etc, then it;s worth continuing the discussions -- IF they give you the NDD.
With specific experience in doing the same with multiple franchises, you are right, they should be disclosing it. Take this has a red flag that they may not the people you want to invest in. Take it seriously, as any franchise is a big investment....
I would move on - this franchisor is clearly not aware of the importance of this relationship. There are many more out there willing to share their FDD and become your partner.
I own a couple of franchises and asked for the FDD before I went to meet the franchisor team. I wanted to run my own financial models and speak with other owners before taking that last step.
Yours is a very reasonable request and would demand that before going forward.
I would say that if you have been working with the franchisor for over a month and they are reluctant to release their FDD that is a huge red flag. I would not go to Houston unless your accountant has had an opportunity to go over the FDD. The franchisor appears to want to give you the sales pitch not the financial information and the financials are the most important part. I would suggest looking for an alternative franchise in the same business. Remember most franchise agreements are written to protect the franchisor, not the franchisee so make sure you have a franchise lawyer go over the franchise agreement before you sign on the dotted line and have an accountant look at the financials.. Good luck with your venture..
Answering the question directly:
What you should do is call them out on it. Running a franchise can get stressful, especially at launch. You can flavour it however you like, but my recommended script would go something like:
We've been in talks for over a month, and I'm finding it hard to wrap my head around your reluctance to get me that FDD. I'm not going to waste time listing all the ways this looks bad - I will just say I have no intention of flying out to Huston based on a few phone calls with a team who doesn't seem to take me seriously. Please get me that FDD, and AFTER I have reviewed it, we can reschedule my visit to Huston.
I consider these relationships like as if I were dating a prospect for a spouse. Realitycheck: If it isn't easy at the beginning it doesn't get easier later on. ADVICE: perhaps find a franchisor that is more responsive and transparent or if you are stuck on a certain concept consider a startup without a franchise. Best of wishes in your journey.
run don't walk away from these guys. I assume by waiting until you spend the money to see them at their office and experience their charming personalities the twill think you are committed.
Without full disclosure of revenues, speaking to other franchise owners you may be in for a lot of grief. I've had plenty of experience with the fray area franchisors and most franchise too early, don't have sollid network in place or have not completed their homework before franchising then they use charm to convince people to 'trust' them. Perhaps you can align yourself with a reputable franchise management firm near you to separate the good from bad.
Well, the FDD has to be provided in advance of any negotiations. If you have had multiple conference calls over a couple of weeks you must by now be interested in detailed franchise info so you can begin to negotiate. Certainly you wouldn't go to the extent of flying to their offices unless you intended to begin negotiations. I'd say it's past the time that they should be providing the FDD. If they don't, run the other way as fast as you can.
Hello ,As my experience in franchise they should release FDD when ever you complete all the requirments , they shall send their representative to check all these requirments , once you have done all the work ,they have NO reason to delay specially if you have franchisees ,they must be delayed too , So you have to insist & ask them to release it immediatley .with out delay .
You have lots of great advice already that I concur with. So, if by chance your'e excited about the business you must set aside your emotions about the business focus on the facts and business aspects. Your request is reasonable at the is point in time and just good business so get it or walk. After all, if this is how it will be during the honeymoon period, how might it be if you get together!
A good solid franchise would normally release the FDD at a very early stage in the process. I can't think of a reason why they would not want to let you see it unless there is something they don't want you to see. Your discovery day is well into the process, in-fact nearer the end of the diligence process. The franchisor can't offer to sell you anything until 14 days after you sign the FDD. Remember, it is 14 days after you sign it, not when you receive it.
Tell them they are supposed to release this document by law when requested.
Give your offer of counter compelling business model.. meet the Franchise team.. if you can also try the competitor - will be good for negotiations
Why not go to the meeting and just sit through it to get the FDD? They might be supposed to give it to you (even by law); but are you going to sew them? No. They know that.
Also think about the trouble you are already having with them. Do you want them as partners who can tell you what to do, what to charge... from the sounds of it you learned all you need to without the FDD to move on and find a better group of people to work with.
If the model is solid, it's to the franchisors advantage that you want to move forward before Discovery Day. I agree, red flag. If they are taking the hardline this early in the process, your getting a sample of future exchanges. Check with FreeFranchiseDocs.com, they offers most FDDs.
Your accountant is correct, the franchisor may tell you that they want to make sure that you are "really serious" before providing the FDD, but they have a legal obligation to provide it to any candidate requesting it in good faith. They might require you to be financially approved before providing it, but that is a grea area.
They probably have something to hide (poor financial performance, terrible franchisee validation, or lots of litigation) or they plan to pressure you at their Discovery Day or give you a "limited time offer" that will seem too good to refuse. Franchisors who play this way are not good long-term partners...Here are some sites where you can get the FDD from any franchisor registered in MN or CA and another t compare FDD's for franchises in any specific industry.
Contact me directly for more detailed info or if you have further questions!
Ron Bender, CFE
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