Deciding whether to provide financial information in an Item 19 can be a challenging process for emerging franchiors. You want to have a good answer when a prospective franchisee asks the question “how much can I make?” In the panel titled “Item 19: Using Your FDD as a Sales Tool” at the Springboard Conference in Philadelphia on September 19, 2019, several experts discussed the benefits of providing an Item 19 in an FDD and how that information can be effectively used by franchisors in the sales process. The panel included Fisher Zucker Partner, Dave Allsman, and former Fisher Zucker Associate and current In-House Counsel at Brightway Insurance, Max Staplin.
Panelist Nick Sheehan of St. Gregory Development Group noted that for his brands, a robust and detailed Item 19 is vital to providing a prospective franchisee with a full view of their potential investment. Depending on the disclosures that competitors are providing in their Item 19’s, it can often serve as a prerequisite to stay competitive in the sales process.
Several of the panelist’s comments pointed to the same theme – To build an effective FDD, Item 19 specifically, you need ample input from the sales team. The sales team knows what potential franchisees most frequently ask, and more importantly, Dave Allsman adds, what makes their business special. Being proactive in the FDD drafting process can make the sales team’s job much easier. This advice is not Item 19 specific, either. Max Staplin discussed a possible strategy in making the fees listed in Item 6 more manageable by stating that it could be helpful to have the sales team create supplemental materials. These materials can make the fee information more digestible. Note: It is extremely important that an attorney reviews these materials before use to ensure consistency and compliance with state and federal regulations.
Dan Durney of Assisting Hands Home Care also added that having a franchise development website, separate from your brands consumer-facing website, can be an effective sales tool. In the modern internet-age, prospective franchisees are looking to self-educate in any way they can. Having a website with relevant information can be useful in providing the information they are looking for.
The last theme that was highlighted on the panel was the importance in having an experienced franchise attorney. Alesia Visconti of FranServe made this point by stressing that franchise laws are very specific and specialized, so franchisors and franchisees alike should all obtain the counsel of someone with knowledge in the field. When an emerging franchisor asked the panel if he can trust his newly drafted FDD, as he had never read one before, the answer he was met with was “it depends who drafted it.”
– Fisher Zucker