Franchise development executives from Buzz Franchise Brands, Vio Med Spa and I Heart Mac and Cheese share the knowledge they gained from the FDD finalization process.
For brands that have made the decision to grow through franchising, the drafting and finalization of a Franchise Disclosure Document is one of the final hurdles to clear before they can begin selling franchises. It is also arguably the most significant. FDDs are incredibly detailed—sometimes more than 200 pages long—and though they exist for the benefit of prospective franchise candidates, there is a lot that brands must know about the document to make sure theirs meets the Federal Trade Commission’s and individual states’ standards.
“Something I didn’t understand at the beginning was that FDDs are living documents that change year to year,” said Buzz Franchise Brands CEO Kevin Wilson, the parent company of franchise brands Pool Scouts and Home Clean Heroes. “So now, as we learn more about our business and our franchisees, we’re updating our FDDs to reflect that. We adjust it to make it more franchisee-friendly or market-based, depending on where we are looking to grow.”
Grasping the idea that these dense documents present prospective candidates with a cross-section of a business in order to make as informed a decision as possible before investing a large chunk of their personal savings is imperative to tackling the extensive process that is FDD drafting and finalization. In order to best position themselves for success during the process of drafting and finalizing their first FDD, franchisors should enlist industry experts to provide input, their peers advise.
“Working with a seasoned franchise lawyer from the beginning is the best advice I can give others looking to franchise their business,” said Steve Giordanella, CEO and chairman of I Heart Mac and Cheese. “We used in-house counsel at the beginning of the drafting process, and while they were a tremendous resource, franchise law is incredibly specific. Additionally, make sure you speak to enough people in the franchise world to accurately understand the nuances of the document and the different fees you should have in place for single and multi-unit deals.”
Joe Stanoszek, co-founder of Vio Med Spa, shared Giordanella’s sentiment.
“During the FDD finalization process, we learned how important a well-versed lawyer and consultant who understands the intricacies of the document are to completing the process correctly the first time,” Stanoszek said. “We experienced some trademark issues initially that caused the need for more communication and expert legal representation, and having someone with that expertise involved in the process made a huge difference.”
Another complexity franchisors must navigate are the state-specific requirements FDDs must include in order to sell franchises in certain areas.
“The regulatory side of FDDs was also an important learning experience for us,” Wilson said. “Some of the surprises we encountered weren't pertaining directly to our FDD per se, but came about more so in the different interpretations by each state’s system. For example, when we began franchising our first brand, Mosquito Joe, we filed in every state. We learned the hard way about the nuances of registration states and the different interpretations certain states have. We were able to use that information to modify our strategy with our other two brands, choosing to file in our home state of Virginia, but no other registration states at this time.”
Giordanella agreed: “Something I didn’t expect was how many differences exist between states. Registration in certain places is a really complex, specific process. There's a lot of rules to navigate about what can and can’t be identified about your company.”
While the FDD process might be daunting, franchisors who take a detail-oriented approach to the drafting process are those most prepared to successfully execute FDD finalization requirements in the shortest amount of time.
“My best advice is to make sure you understand all of the minute details of the document,” Stanoszek said. “Be as specific as possible, down to the room count and cotton ball count in each of those rooms. This applies to your financials as well. Painting the most accurate picture possible is the best course of action."