You are here:

Franchising/Franchise Operations Manual; Cost To Franchise A Business - Mr. Franchise Weighs In

Advertisement


Question
Our company is planning to franchise and a franchise consultant tells us his company needs to draft a franchise operations manual for us, as well as something called a Franchise Disclosure Document. They've quoted a $50,000 fee to do this. Any recommendations or input on whether this is a reasonable charge? Anything we can do ourselves to reduce it? %50k is a lot of money for our company to spend. Thanks for your time.

Answer

Kevin B. Murphy, B.S.,
Your question covers a number of topics, so Iíll go through them one by one.

FRANCHISE OPERATIONS MANUAL
The Table of Contents of your Franchise Operations Manual is disclosed in the FDD (Franchise Disclosure Document), so technically you need a Franchise Operations Manual to franchise. The rub comes in who is the best person to draft the Manual. Thereís some great information about this topic and writing a Franchise Operations Manual at:

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

Bewildered by the new business of franchising, with its legal requirements, franchise disclosure documents, operations manuals, training programs, etc., many companies delegate franchise manual drafting responsibility to a high-priced franchise consultant. But using someone to write your franchise operations manual who knows literally nothing about your business and is learning from scratch at your expense, never makes any sense when everything is considered objectively.

Iíve developed a three-step approach to writing your own franchise operations manual, a best practice approach based on 29 years of writing, editing and reviewing hundreds of franchise operations manuals. This approach produces truly customized, professional manuals and eliminates having to pay a franchise consultant $20,000 or more for this relatively simple task. The three-step approach is covered in the link provided above.

FRANCHISE DISCLOSURE DOCUMENT (FDD))
The legal threshold for selling franchises is preparing (and in some franchise registration states, registering) the Franchise Disclosure Document. The FDD used to be called a UFOC but there was a name change under the new FTC Franchise Rule that became effective in 2007 and the required format in all states starting July 1, 2008. Thereís some good articles about FDDís at:

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

COST TO FRANCHISE A BUSINESS
Although the franchise consultant has offered to draft your Franchise Disclosure Document, unless they are also licensed attorneys (which hardly any are) doing this is the unauthorized practice of law. Most franchise consulting groups that sink to this level include fine print in their contract that you need to hire your own franchise attorney to review everything they do. This doesnít get them beyond the unauthorized practice of law violation. It also means you to pay the piper twice Ė the franchise consultants and your attorney.

Regarding the $50,000 fee they quoted, itís not out of the ballpark compared to what other consulting groups charge Ė but it is excessive, in my opinion. And does it include strategic franchise planning? You need a lot more than a franchise operations manual, an FDD, an invoice and a handshake to succeed in franchising Ė especially these days.

A reasonable benchmark for franchising a business is to budget about $30,000 for strategic franchise planning, help planning and editing your franchise operations manual as well as drafting the Franchise Disclosure Document (FDD). If you use an experienced franchise attorney with an MBA and franchise ownership experience, you wonít need to hire a separate franchise consultant for strategic planning and drafting your franchise operations manual. This will save you at least another $20,000 to $30,000, possibly more.

THE MOST CRITICAL ASPECT OF FRANCHISING A BUSINESS
Based on my almost three decades of experience in the franchise industry, working on over 500 franchise assignments, there's a  critical post-documentation aspect that most new franchise companies fail to address. It is the training and hand-holding that should be given as new franchise companies enter the new business of franchising. Mistakes made early on (and there are many for the ill-prepared and untrained) can either undermine the entire franchise effort or haunt the company for decades to come.

Itís crucial to have a franchise expert train the new company and provide ongoing feedback in franchise best practices, 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. Although you can expect to spend another $5,000 to $10,000 on this training, it's one of the best investments your new franchise company will ever make. One immediate return on this investment is not having to hire an outside franchise person to help run the new company.

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

    Questioner's Rating
    Rating(1-10)Knowledgeability = 10Clarity of Response = 10Politeness = 10
    CommentThanks! I read their proposal carefully and you're right - it says I have to have my own attorney review everything they do. Another added expense on top of the $50,000. And thanks for the tips about writing our own franchise operations manual. Makes a lot of sense.


  • Ask a Question

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 Singaporeís 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

©2017 About.com. All rights reserved.