Reviewing the FDD with the Client

After receiving the FDD, and reviewing the document independently, my client and I had plenty to cover when he came into my office.  We went through the FDD together and talked about the items that we were going to ask the Franchisor and the franchise attorney to explain.  We looked through the financial statement and the Financial Performance Statement.

This is often called an Item 19 of the FDD (Franchise Disclosure Document); only about 20% of franchises publish a Financial Performance.   Some Franchisors will tell you that they are not allowed to discuss earnings information, this is not true.  A Franchisor IS allowed to present earnings in their FDD.  They are not, however, allowed to discuss earnings that are not written and published in that disclosure.  If a Franchisor has impressive earnings often they will publish and disclose that information.  And, if they do a great job, why shouldn’t they?  Many franchises avoid publishing earnings claims or financial performances because they feel the liability is too great if a Franchisee is not successful.  We always encourage Franchisors to publish earnings claims because they are incredibly useful and important to a prospective Franchisee.  Earnings is why they are interested in franchising in the first place.

At this stage of the process, we could have exercised our right to use one hour of complimentary accounting services provided through our membership with the Franchise Brokers Association, but we chose not to because my client had elected to have our attorney, Eric Riess of Greensfelder Attorneys at Law, negotiate the FDD.  Eric Riess is not only an esteemed franchise attorney, but also an Accountant of 25 years.   We sent Eric and his team a copy of the FDD to review.  We scheduled a meeting to go over the information with Eric, myself and our client.

Now it was time for the good stuff, calling the Franchisees in the system.  We went to the back of the FDD where it lists the names and contact information of all current and past Franchisees.  It was very important to me that we pick the right franchise for this client, so we made the joint decision to call all the Franchisees in the system and all the Franchisees that had left the system.  We went through one by one and spoke to the men and women out on the field operating the S.T.O.P. franchises all across America.

The results of this research were overwhelmingly positive.  Every Franchisee said the same thing: the system works!  They said that they were profitable within 3 months.  They said that the Franchisor was there to help them at every turn.  They said that they were pleased with the Franchisor and their decision to move forward with STOP.  They were all extremely nice and helpful.  Of course we didn’t reach all of them, but we certainly tried.

The Franchisees that had left the system were almost entirely still in the same business.  They had used STOP to become good business owners and have a system to follow and then left when their franchise agreement was up.  All that we spoke to said that they were profitable.  Even the one that had closed his business for personal reasons indicated that he was grossing over $1 million a year and was successful at the business.  This was great information and absolutely exciting for my client and for me.  I love working with franchises that have a great track record.

Once we finished up with the calls, we scheduled our next appointment with the attorney.

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