Franchise Equalizers

FRANCHISE MYTHS



Franchise Myth #1

The franchise salesperson and the franchise broker (consultant) have to tell me the truth.



You would think so, but they don't.  What they say doesn't matter.  Neither do the pretty brochures nor the beautiful website.  They make a commision only if you buy.  This means they may not tell you details you need to know.  The only information that matters is what is contained in the Franchise Disclosure Document (FDD). 



Franchise Myth #2
The franchise agreement is not negotiable.

Even the larger established franchises may have some terms that are negotiable; like how large the territory will be or who will pay for training expenses. Smaller franchises, regardless of what they tell you, will usually negotiate many more aspects, including the franchise fee if done properly. This is why it's important to understand the FDD!


Franchise Myth #3
Franchises are "awarded" not "sold."

Although some high demand franchises are selective, many more just want you to think they are. As a sales tactic, some will even put you through evaluations then cherry-pick the results to make you feel better about being "selected". What most buyers don't understand is that particularly in smaller franchises, franchise sales is the cash that operates the business. Many franchise sellers find it difficult, if not impossible, to turn down a $30,000 check. Another reason to understand the FDD!


Franchise Myth #4
The franchise company only makes money if I make money.

In the vast majority of franchises, they take some percentage of your sales as "royalty". But it doesn't matter if you are profitable or not. Even if you are losing money, you still owe royalty. Consider the example of a fast food restaurant that floods the market with "buy one, get one free" coupons. The restaurant is selling twice as much product at half the revenue with double the food cost. Is the franchise owner making any money? Probably not. But royalty is still due on all sales. Those details are in the FDD!


Franchise Myth #5
The Franchisor is required to disclose sales and profit information to potential buyers.


Many, but not all franchises disclose some performance information in what is called Item 19 of their FDD.  Some franchise advisers consider the omission of an item 19 to be a "deal killer'.  With today's technology, there are few legitimate excuses for them to be missing.  It may mean if included, the performance numbers would scare buyers off.



But even with an Item 19, it can be very difficult to read between the lines.  Franchises can include projections which, while legal, may not be realistic. Franchise Equalziers can help you accurately interpret the information in the FDD.

Franchise Myth #6
They won't open another one near me.

While the broker or salesperson may imply this is the case, the reality is that most franchises offer what are called "site only" franchises. This means you have little-to-no territory protection and it is up to the "sole discretion" of the franchisor where to put units. Certainly it may not make sense now to develop another site a mile away, but what about in two years? Demographics change and you have no right of first refusal or recourse unless it is specifically spelled out in the FDD. 


Franchise Myth #7
The salesperson or broker will let me know all the details I need to know.

While the salesperson or broker may offer to review the FDD with you, you cannot rely on them to have your best interests in mind. They only make their commission if you buy.  They may skip something that's important, or gloss over something you need to know. At the end of the day, the written word will rule and verbal promises mean nothing. Even if the people you meet are sincere, what if the franchise brand is sold or new management comes into play?  It won't matter what they told you if it's not in writing.  Knowing the FDD is important to your future and your family, so let us help you understand this critical document!