You are here:

Franchising/Franchise Kits - FDD Templates, Franchise Operations Manual - Mr. Franchise Weighs In

Advertisement

Expert: Franchise Attorney Franchise Expert MBA - Kevin B. Murphy - Mr. Franchise & Former Franchise Owner - 1/13/2009


Question
Our company wants to franchise and we're thinking about buying a franchise
kit that includes an FDD Template (that also includes a franchise agreement
template) and a franchise operations manual template. We realize it will
probably need to be adapted and reviewed by a franchise attorney (for the
legal) and franchise consultant (for the manual). We figured it would lay the
groundwork and save some money in the long run. What do you think?
Thanks for your time.

Answer

Mr. Franchise
STEP BACK, AND DO A FRANCHISE FEASIBILITY STUDY
Before investing in anything, I recommend your company take a couple steps back and hire a franchise expert to determine if your business has what it takes to be successful as a franchise model. Before undertaking the expense and commitments it takes to enter the franchise industry, you need to know if franchising is in the cards for your business or not. A franchise feasibility study by an objective franchise expert (one who doesn’t tell every client they’re franchise-able) is a solid investment. If the results are positive, then proceed.

FRANCHISE KITS & FDD TEMPLATES – COST SAVINGS?
The use of Franchise Kits and FDD templates, etc. is not a recommended approach, nor will it result in any cost-savings. For example, the FDD contains 23 chapters of information, covering hundreds of topics and potentially thousands of discrete disclosures, depending on the particular industry and business involved. Doing it properly up front will save you a ton of headaches and going to court later on. Franchise litigation costs are incredible these days - you can drop a couple hundred thousand in just a few months.

I’ve been drafting and reviewing FDD’s (formerly called UFOC’s) for 29 years now. If someone gives me a draft or template to work from, it actually takes more time to review the template compared to doing the document from scratch. That’s because of the need to ensure all the mandated disclosures are there, in a manner that’s true, complete and not misleading, and that they are consistent with all provisions in the franchise agreement. This checking and review process, going back and forth between template documents and disclosure regulations, adds another significant time-consuming component compared to doing it from scratch, using my own work product.

What unfortunately happens with FDD templates is they are either used “as is” or are reviewed by a general practice attorney on the cheap who is not a franchise attorney. The end result is a document that is literally a ticking franchise litigation time bomb, giving franchise buyers a springboard to cancel their franchise contracts and sue the franchise company for damages. I see FDD templates and franchise kits  in another capacity – as a consulting and testifying franchise expert. Franchise litigation legal costs defending a case can easily exceed $200,000 in just a couple months these days and is definitely not the place your company ever wants to be.

DRAFT FRANCHISE AGREEMENTS
Now, let’s talk about “draft” or template franchise agreements. Same problems. First of all, the contract must be structured from a good legal as well as business perspective. If it’s overly tight or unfair (legal issues) and doesn’t achieve a delicate balance (business issues), there will be disgruntled franchise owner problems down the road, believe me – I see it all the time. You won’t find a franchise agreement meeting these twin standards in a draft or template version. There's a lot of planning and thought that needs to go into it, based on the company and competition. Second, because numerous franchise agreement provisions must be cross-referenced under various disclosure topics and tables within the FDD, if I’m working with a draft franchise agreement that I’m not familiar with, this presents yet another challenge. The end result is substantially more billing time for the client - good for me, but not for my client.

TEMPLATE FRANCHISE OPERATIONS MANUALS
Using template operations manuals only makes sense as a starting point. If you’ve never written an operations manual before, seeing one can give you a flavor for topics or chapters. If you can view a number of manuals, then you can learn different presentation and drafting styles.

With a franchise operations manual template, I don’t know how much detail you will learn. One thing is clear - you definitely won’t see different presentations and drafting styles. There’s also another, more serious problem with these templates – legal risk. As a consulting and testifying franchise expert I see operations manuals drafted by franchise consultants (and usually originating from a franchise kit they came across at some point in their career where hopefully all instances of “burgers” are searched and replaced with “tax returns," for example). The end result is a mediocre product. A more important problem is these manuals contain inappropriate topics or chapters that create long-term legal risk. That’s why I’ve developed a three-step process so companies can write their own, professional operations manual. It’s a relatively easy task, and there’s a great article about this topic referenced below.

BOTTOM LINE ON FRANCHISE KITS
Good idea to try and save your company some money, but using a franchise kit with “templates” won’t accomplish this goal. In fact, your company will end up spending a lot more this way to have it done right.  

THE BEST PRACTICE APPROACH TO REDUCING TOTAL FRANCHISE DEVELOPMENT COSTS
If you’re looking to save your company money, as in tens of thousands of dollars, a much better approach is to use a firm that:

(1) can produce the legal documentation (FDD, franchise agreement, etc.) tailored for your business at a reasonable, fixed contract cost of about $30,000;

(2) the pricing includes strategic franchise planning by a seasoned franchise attorney MBA, so a separate franchise consultant charging $20,000 or more is not required for the business issues;

(3) and also includes helping your company produce their own franchise operations manual, another relatively easy task franchise consultants charge $20,000 or so to write;

(4) is available to train your franchise management team in critical areas like adopting the proper franchise organizational structure, franchise marketing, interviewing prospective franchise buyers, selling and documenting franchise sales, effective franchise training and start-up, franchise support and implementing a franchise advisory council; and

(5) is available for ongoing advice and consultation, especially during the franchise marketing phase when franchise candidates are interviewed and franchises are sold.

There are some good articles on the Franchise Foundations website about these topics at:

Developing a cost-savings franchise development budget:

http://www.franchisefoundations.com/franchiseabusiness.html#Bookmark2

Writing your own franchise operations manual:

http://www.franchisefoundations.com/operationsmanuals.html

Evaluating franchise attorneys and franchise consultants:

http://www.franchisefoundations.com/franchisearticlesi.html#Bookmark4

Good luck, and if you have any specific questions, contact me through the Franchise Foundations website link below.

Kevin B. Murphy, B.S., M.B.A., J.D.
Mr. Franchise
Franchise Foundations
http://www.franchisefoundations.com/franchiseattorney.html

Franchise Attorney Franchise Expert MBA - Kevin B. Murphy - Mr. Franchise & Former Franchise Owner

Expertise

Franchise Attorney, MBA Franchise Expert, author and instructor with 2-plus decades of franchise industry experience, including ownership of a successful franchise. I answer all business format franchise questions, how to franchise a business, issues about ongoing franchise relationships, buying a franchise, evaluating franchise investments, franchising vs. licensing (franchise vs. license), franchise disputes, franchise operations manuals, franchise expert advice in franchise lawsuits and franchise litigation, franchise agreements, FDD Franchise Disclosure Documents and intellectual property. I don't answer questions about franchises in the automotive and petroleum industries. I have drafted, reviewed and negotiated over 500 franchise disclosure documents, advised hundreds of franchise buyers and franchise companies as well as started and operated a franchise from scratch - a background not duplicated by any other franchise expert. My in-the-trenches franchise ownership and resale experiences gave me valuable insights to share with potential franchise buyers and existing as well as emerging franchise companies.

Experience

Known in the industry as Mr. Franchise, I owned, operated and sold a very successful franchise in the home improvement industry. I help individuals and companies enter and prosper in the franchise industry, have drafted, reviewed and negotiated over 500 FDD's (Franchise Disclosure Documents) and have experience filing franchise registrations in all franchise registration states such as California, Illinois, New York, etc. I am very familiar with the McDonalds franchise program, have developed a cost-savings franchise budget for companies that want to learn how to franchise a business, and pioneered a unique FDD Evaluator program for those considering a franchise investment.

Publications
Author of over 40 franchise articles, including four books on franchising and one book on trade secrets.

Avoiding Legal Pitfalls In Franchise Marketing
2009, Franchise Foundations Press

Franchise Sales Control
2009, Franchise Foundations Press

Effective Franchise Marketing
2009, Franchise Foundations Press

Implementing A Franchise Disclosure Compliance Program
2009, Franchise Foundations Press

Protecting Trade Secrets
2002, Franchise Foundations Press

Also authored foreword and edited various chapters of the following book:

The Franchise Handbook: A Complete Guide to All Aspects of Buying, Selling or Investing in a Franchise
2006, Atlantic Publishing Company


Education/Credentials

B.S. Business Administration (Finance), University of San Francisco,

Juris Doctorate (J.D.) of Law, University of San Francisco School of Law,

Active member of the State Bar of California

Master of Business Administration (M.B.A.) - International Business, San Francisco State University,

Approved Provider of MCLE by the State Bar of California, 1993 to present
Teaching franchise, licensing and intellectual property courses to attorneys in topics like franchise feasibility, international franchising, franchise marketing, franchise planning, franchise kits and others.

Awards and Honors
Selected as the premier U.S. franchise expert by the World Intellectual Property Organization (WIPO), an agency of the United Nations, in Geneva, Switzerland to speak at Singapore’s World Conference about franchising in Asian countries and developing uniform franchise regulations based on the U.S. franchise laws and regulatory model, September, 2007, hosted jointly by WIPO and the Intellectual Property Office of Singapore (IPOS).

Snapshot of Recent Franchise Expert Litigation Cases:
Nagrampa v. MailCoups Inc. and The American Arbitration Association - United States Court of Appeals for the Ninth Circuit (Argued and Submitted En Banc). Summary: provided franchise expert strategy and consulting in a case that established new franchise law by invalidating the standard arbitration provision in a California franchise agreement on the grounds it was unconscionable.

Swansons Cleaners, et al. (Superior Court jury trial). Summary: provided franchise expert consulting that re-focused the legal issues and discovered new causes of action. Testified at deposition and trial for a franchisee in its claims against the franchise company. Result: jury verdict in favor of the franchisee for $1.6 million in punitive damages and $634,000 in contract, etc. damages.

For more information, visit the Franchise Foundations website

©2012 About.com, a part of The New York Times Company. All rights reserved.