Everything You Need to Know About Franchise Disclosure Documents

Everything You Need to Know About Franchise Disclosure Documents

What is a Franchise Disclosure Document? (And how to identify a good one!)

If you’re just starting out in the franchise industry, either as a prospective Franchise Owner or a business owner who is looking to start franchising your concept, chances are you’ve come in contact with a term you’re going to be hearing a LOT: Franchise Disclosure Document. As the legal backbone of a franchise organization, the Franchise Disclosure Document, or FDD, as it’s often called, is the single most important document a franchise candidate will receive. Let’s take a look at what goes into the FDD, and how to tell if the franchise company you’re looking into is a sound investment based on the quality of the information and detail in the document.

What is a Franchise Disclosure Document?

We’ll start by saying that our VP of Sales Brian Knuth summed it up perfectly in an interview with 1851 Franchise, saying, “To put it simply, an FDD is the legal documentation of the offering a franchise organization is selling to an awarded franchise buyer… It outlines the history of the business, fees, rules and restrictions, all the franchisees in a system, turnover rates, renewal terms and other aspects of a particular franchise.” 

An FDD outlines everything you need to know about a franchise, with 23 separate sections dedicated to telling you every detail about the franchise, from any parent company that might actually own the franchise to pending or past litigation to financial statements; however, with many FDDs numbering somewhere north of 200 pages, the document can quickly become a tedious read if you are new to the world of franchising. We can not impart enough about the importance of reading the entire document (more on that in our next section). 

An FDD is basically your introduction to the franchise, and you will need to read it carefully to understand what’s expected of both you and the parent company. Once you receive your FDD, it’s best to go over its contents with a franchise attorney (or an experienced Franchise Owner) to fully understand what you are agreeing to.

Why You Need a Franchise Disclosure Document

In the simplest terms, an FDD is a legal document that allows you to make an informed decision as a potential Franchise Owner. You legally are required to receive the document no less than 14 days after signing a franchise agreement or giving the franchise Founder or parent company any money to start your journey of becoming a Franchise Owner.

You need an FDD not only for the legal protection that comes with it but also to understand the company you are looking to join. While things like history may seem unnecessary for you to know about, it helps you understand the Founder’s vision for the company and the image they would like to project. Other things you will learn about include litigation taken against the company, bankruptcy history, initial and ongoing fees, your estimated investment costs, any restrictions on products, both your obligation to the company as well as theirs to you and a host of other information that allows you to learn exactly what you are going into when signing with a company.

Some people can easily become confused by an FDD which is why we recommend hiring an attorney with experience in franchising to examine the document with you. For example, many people will see the company’s financial disclosures and believe their franchise will bring in the same amount (or more). In actuality, an FDD cannot tell you how much you will earn; it can simply show you what similar locations make annually.

Signs the Franchise Disclosure Document Indicates a Successful Franchise

They Disclose Information Correctly

A successful franchise wants to openly share its success with you, not hide it from you or give it to you “off the books.” For example, shady franchise companies have been known to provide FDD Item 19 (Financial Performance Representation) in a separate document. This isn’t good news for you; instead, it shows the parent company might not abide by the rules—especially in the services they must provide you as the Franchise Owner. Instead, a successful company will fully disclose this information in the FDD, allowing everything to be on the books.

Successful Network Statistics

Item 20 of the FDD will show you statistics for other Franchise Owners, including turnover rates and the number of franchise agreements signed but not yet open. These two statistics are integral for you to take a good look at. Franchise Founders with a high amount of turnover may have a troubled system that does not provide adequate support to Franchise Owners or signs franchise agreements without looking at whether or not the business can be successful while a high amount of signed but not opened franchise agreements can mean the franchise does not offer adequate support in opening the business or adequately examining if Franchise Owners are able to open the business.

Proper Estimated Startup Costs

In Item 7, you will see estimated startup costs to become a Franchise Owner. A properly formatted document includes a detailed estimate laying out these costs so you can understand how much money you need and where it will be spent. Of course, these are just estimates (and some companies do not include a real estate estimate), with the franchise making their best guess. However, some companies will not disclose where this money is supposed to go or even the factors used to determine their estimate. If something is in doubt, contact the parent company for a detailed breakdown (which they need to be able to provide).

Franchise Owner Contact Information

A legit FDD will provide a potential Franchise Owner with a list of names and contact information for every current Franchise Owner as well as those who have left the company in the last year. You should take the time to contact an assortment of current and ex Franchise Owners to gather their general thoughts about the company and confirm information (especially financial) in the FDD is accurate. Some former Franchise Owners will have personal issues with the franchise, so you should take that into consideration, however, talking to a few ex-Franchise Owners can allow you to spot patterns that have led numerous people to leave.

Becoming a Franchise Owner can be a rewarding experience, but it’s also important for you to complete your due diligence when making such a life-changing decision. One of the best ways you can avoid shady or corrupt franchises is to use a Raintree. Raintree is dedicated to bringing potential Franchise Owners and Founders together to create strong business relationships. For more information, please visit our site by clicking here.

Should I Buy An Established Or Emerging Franchise Brand?

Should I Buy An Established Or Emerging Franchise Brand?

Should I Buy An Established Or Emerging Franchise Brand?

Investing in a franchise presents a really exciting opportunity. 

The idea of running your own business, but doing so with a team of experts behind you, is one of the many reasons entrepreneurs look to franchise ownership. 

The difficult part is deciding where you should invest your money. 

There are many established brands offering franchise opportunities. Burger King, Subway, and 7-Eleven are just a few examples. 

The thought of owning a business that offers almost guaranteed success- or at least a much higher rate of success than that which comes with a typical independently-owned businessis attractive. 

A new world of franchise opportunities is available with emerging brands, and each one offers its own benefits. 

Lower investment amounts, a closer relationship with the brand’s Founders, and the opportunity to scale: these are just a few of the reasons why some investors are choosing to spend their money on emerging brands like Footprints Floors, Dog Training Elite, and Hounds Town USA instead of going with one of the bigger names.  

The rewards, while not always guaranteed, may in fact be a whole lot greater with an emerging brand. 

How do you know which one is the right choice for you? Let’s take a look at the advantages and drawbacks of each scenario.

 

 

 

Pros & Cons Of Buying An Established Brand

Pros 

Consumer Awareness 

If you choose to invest in a popular franchise, you already know before you invest that customers want what you’re selling. 

As a result, you take away the risk of setting up a business and it failing because the market simply isn’t there.  

Customers know what the business is, what it does, and whether they like it or not. 

There’s very little effort that needs to go into promoting the brand itself.

Fewer Risks for Investors 

For those looking to make an investment that does not come with too many risks, going with an established brand often feels like the sensible thing to do. 

Larger franchises can evidence a proven business model. 

Combine this with consumer awareness of the brand as mentioned above and potential investors have a pretty sure bet.  

In fact, it’s all relatively predictable. 

Franchise Owners can calculate with reasonable accuracy what their profit and loss might look like. There is also plenty of expert support available to you as you need it, not to mention a model that’s proven successful in markets across the country- or even the world- for you to follow.

Cons 

Business Models Can Become Outdated 

While having a set business model is attractive and often works really well, sometimes larger brands do not revisit this enough. 

As a result, it can become stale and no longer effective. 

With larger franchises, it is often more difficult and expensive to change this business model. 

There is also an idea that if something is working, why change it?

While that might be true in the short term, businesses need to stay agile enough to adapt to change when necessary. 

Established brands don’t always do this which can lead to their downfall. 

All you’ve got to do is look at Blockbuster Video, which has become a cautionary tale for companies across multiple industries, as it shows how even a giant corporation can fail spectacularly if it is unwilling or unable to gauge changing consumer behaviors and needs.

Customer Fatigue and Market Saturation 

“Oh look, they’re building another Starbucks. How many more do we need?” 

That’s probably something you’ve either said or have heard other people say. 

There’s a risk when investing in a franchise of an established brand that there is simply too much competition around you for you to be able to make enough money. 

Customers are also looking to support smaller, more independent brands where they can. 

Many have chosen to shop locally where they can since the outbreak of the pandemic back in March 2020. 

With larger brands, therefore, you run the risk of customer fatigue.

Higher Investment Costs 

If you’re buying into an established brand like McDonald’s or Starbucks, there’s almost a guarantee of success. 

The thing is that this guarantee is not going to come cheap

It is going to cost you a huge upfront investment. This means that opportunities with these businesses are often only available to experienced multi-unit Franchise Owners. 

Pros & Cons Of Buying An Emerging Franchise Brand

Pros 

Exciting Opportunities For Growth

Established brands are often the most attractive to Franchise Owners. 

They can jump straight in and it isn’t long before the businesses are making good money. 

The business model established brands present to entrepreneurs is also usually tried and tested, with proof that it works. 

The exciting thing about emerging brands is that there is so much more potential to make the business your own. 

And this excitement goes both ways. 

Both the Franchise Owner and the brand itself are looking for opportunities for growth. This means more chances to have a say in the steering of the business itself. 

Without a hard and fast way of doing things, there is room for innovation. 

Entrepreneurs buying Franchises from smaller brands are often just as eager and capable as larger investors, they simply have a smaller amount of capital available. 

Investing in emerging brands is not just for the new Franchise Owner, however, 

Those will experience and perhaps a bit of spare capital will enjoy the new challenge of working with a smaller brand. Their experience will serve them well in knowing how to make the business succeed.

Adaptable To Modern Consumer Trends 

As an emerging brand, there is so much more room for adaptability when it comes to moving with consumer trends. 

What consumers want from businesses changes all the time in line with what’s popular at the moment. 

Having a more fluid business model and being newer to the market can be beneficial as there is more opportunity to try out new things with fewer repercussions. 

Emerging Brands May Already Have A Strong Business Model 

There are some businesses that have been around for a long time but are only just moving into the world of franchising. 

It shouldn’t be assumed, therefore, that just because a company is only just emerging onto the franchise market that they don’t know what they are doing! 

These types of brands are a fantastic investment opportunity. 

The investment capital needed with usually be lower than with established brands, but the risks are also reasonably low. 

This is because you’re getting all the support that would ordinarily only be available in larger brands, and you already have strong consumer awareness.

Cons

Difficulty In Extending Brand Awareness 

As with any new business, there is always going to be a need for marketing. 

Unlike established brands that often already have their own large, ready-built marketing teams, emerging brands might not have that available. 

It might be the job of only one or two people to carry out all the marking work. 

As a result, you’re probably going to have to work harder to promote the business and build up brand awareness amongst consumers. That is, of course, unless you are fortunate enough to find a franchise opportunity with a brand that already has an outstanding Franchise Owner training and support system in place, regardless of their status as an emerging franchise. 

So, Which One Should You Buy?

As you can see, there are benefits to potential investors of buying both established and emerging franchises. 

The decision will generally be down to the investor and just what they are looking for.  

Emerging brands offering franchise opportunities are a brilliant way for entrepreneurs to get into the business. 

The lower amount of investment capital needed makes it the perfect entry route. 

Having said that, even seasoned investors should be excited by the opportunity to work with an emerging brand. 

It’s the chance to really get involved with the business and steer it in the direction you want it to go. 

There’s a chance to be part of growing a business where the earning potential is limited only by your entrepreneurial skills. 

No matter where you are in your search for the perfect franchise opportunity, please get in touch with us via our website for more information.

Should I Buy a Franchise or Start My Own Business?

Should I Buy a Franchise or Start My Own Business?

Should I Buy a Franchise or Start My Own Business?

Are you considering quitting your job and going out on your own? Great! The next thing to decide on is whether to go with a franchise or to start your own business from scratch. Both methods have their pros and cons, and only you will know which is the correct path for you to obtain financial independence.

While we can expound upon the benefits Franchise Owners experience all day, it’s important to admit that franchising isn’t for everyone—especially for people who aren’t able or willing to follow the sometimes-stringent rules that come with franchising. Read on to learn about which option is right for you as we explore the benefits and drawbacks of both methods.

Pros of Franchising

Continuing Support – Franchises want their Franchise Owners to succeed, and when you franchise, you’ll be joining a network of business owners who were in the exact same shoes as you. This support can help you overcome obstacles that come with running your own business as well as providing guidance on everything from streamlining your work process to hiring employees. This support is invaluable to many Franchise Owners, and something you won’t find when starting your own business.

Less Risk – One of the main things people love about franchises is that they’re joining a proven system. For example, no matter where you go in the United States, all McDonald’s locations are going to have a nearly identical menu, uniforms, and layouts. The reason? All these things are proven to succeed. Customers will go to your franchise because they know what they’re going to receive at your store. 

Even the Raintree brands that pride themselves on uniqueness and individuality, such as Shuckin’ Shack Oyster Bar and Voodoo Brewing Co., are careful to incorporate certain elements into each location that have been proven to work, ensuring that new Franchise Owners will be set up for similar success in their new locations. 

You also won’t need to worry about creating new content or products; everything from Franchise Owner training to your menu, products, or services will follow the same guidelines as every other franchise location.

Finally, franchises are less likely to fail than small businesses, thanks to the strength of their business model and stronger brand identity in their market.

Cheaper Initial Costs – While franchises do have fees associated with them (more on that in a minute), they tend to have lower startup fees. You won’t need to worry about paying employees or third-party services to create marketing materials, guidebooks, or even décor because the franchise will already have it created. If you purchase a pre-existing franchise, everything will most likely be included in the purchasing price, potentially saving you thousands. You’ll also find that banks are usually more willing to lend to potential Franchise Owners over start-ups due to the decrease in risk.

Cons of Franchising 

Binding Legal Agreement – When you sign a franchise agreement, you agree to abide by a number of rules, ranging from what décor you use to where your business can be located. If you don’t abide by this agreement, you can lose your franchise. On the plus side, this agreement also entitles the franchise to provide you with things, from marketing materials to uniforms, which can save you money, time, and resources. 

Less Creative Control – When you own your own business, you can do whatever you want with it, down to picking the napkin colors. If you don’t want to follow the rules or need to control every aspect of your business, a franchise isn’t going to be the right choice for you. You will need to follow the guidelines set forth by the franchise, and most are going to have little wiggle room when it comes to following their rules. Some people can find this stifling and are more likely to thrive if they can control multiple aspects of their business.

Fees – Franchises charge fees on top of other initial investment expenses including construction, buildout, furnishings, and inventory or materials. You’ll first have a franchise fee which can vary from a few thousand dollars to seven figures, depending which franchise you choose and how many territories you secure.

On top of this, you will need to pay monthly royalty fees to the Franchisor-  a percentage of your gross profits, ranging from 4-12%. While these fees are low, you will have to pay them as long as you have the franchise. If your location is extremely successful, you may find yourself parting with hundreds of thousands of dollars a year in franchise royalty fees, which can feel disheartening. (On the other hand, there’s a good chance you may not have been able to earn that much revenue in the first place with a startup business of your own!)

Pros of Starting Your Own Business

Unbridled Creativity – Your business is exactly that: your business. You can do whatever you want with your business being you own it. If you are extremely creative and have a vision you want to execute, you are completely able to. This can be a huge plus for people looking to add innovative equipment or merchandise to their business. 

Absolute Freedom – Franchises require specific work environments, décor, uniforms, and guidelines. Every minute detail is planned to the “T,” and this can be a turn-off for a lot of prospective business owners. With starting your own business, you can work wherever you want, when you want. You don’t need to report to anyone or follow someone else’s rules. As far as finances, you’ll be able to grow your business as large as you’d like. Want an international conglomerate? That’s simply not possible with a franchise. Finally, you can form relationships with vendors you want to use and trust, rather than having to use suppliers the franchise demands you utilize.

No Fees – Giving a mother company a percentage of your profits every month/year can be a hard sale. After all, you and your employees are doing the physical work. When you own your own business, all the profits belong to you and your company.

Cons of Starting Your Own Business

More Risk – For starters, banks are usually less likely to lend to those looking to start their own business versus those applying for a franchise. This is simply because franchises offer a tried-and-true method that doesn’t require any trial and error. With your own business, you will need to prove your concept and hope that the public accepts it. It’s also important to note that 50% of start-ups fail within the first five years.

No Initial Mentorship – Most people who start a business simply do not have an outside support system full of experienced business leaders to guide them through their ups and downs. You may find an outside group, like your local Chamber of Commerce, with local business owners;

however, very few of these owners will be in your industry and those who are in your industry will be your competition. Many business owners find mentorship to be one of the most important resources for business growth.

More Work – When you become a Franchise Owner, everything you need to run your business is provided to you. When you start your own business, you need to build everything almost completely from scratch. This results in hundreds of hours of planning and purchasing to get your business off the ground, and many potential startups discover they simply cannot secure the capital they need to make all of their initial goals a reality.

We hope you found this guide a helpful starting point for choosing which business model is the right decision for you. Deciding between becoming a Franchise Owner or starting your own business is a big step, and both options have their pros and cons. You should consider starting your own business if you want more creative freedom; however, if you are willing to follow directions and want lower risk, then a franchise is most likely the right option for you. Not sure where to start looking for an excellent franchise opportunity? We’ve got a few excellent brands to recommend. Check out the full roster of Raintree franchise brands here

Raintree Ranked as Top 30 Digital Marketing Agency in Denver!

Raintree Ranked as Top 30 Digital Marketing Agency in Denver!

We’re pleased and proud to announce that Raintree has been recognized as one of the Top 30 Digital Marketing Agencies in Denver in 2021 by DesignRush. This is a prestigious honor for our outstanding Marketing team and recognizes the innovative, industry-leading digital marketing campaigns they have produced for all Raintree brands.

What is DesignRush?

Raintree ranks in Top 30 Digital Marketing Agencies in Denver 2021DesignRush is a B2B marketplace that puts brands in touch with professional full-service agencies, digital marketing firms, web design companies, and top technology companies.

Over 9,300 agencies from over 50 different countries are listed on the platform, which is consulted by thousands of decision-makers in need of assistance with a project.

“We are truly honored for Raintree to be acknowledged for our digital marketing approach,” said Brent Dowling, CEO of Raintree. “We believe that our deep understanding of digital marketing strategy, combined with a knowledge of how best to use cutting-edge technology, go a long way in the lead generation process for our franchise brands, We plan to continue to move the needle with our creative, innovative digital marketing campaigns that stand out among competitor brands in the franchise space.”

Here at Raintree, we are committed to helping the brands under our umbrella cultivate franchise growth. Our comprehensive, proven franchise development program utilizes an omnichannel approach to ensure that our brands generate quality leads from a broad range of platforms and marketing channels. Our outstanding digital marketing strategy is just one of the many tools we deploy to help our brands see more qualified franchise candidates- and lower recruitment costs- to achieve their desired level of growth.

Hats off to Raintree’s amazing Marketing team led by Marketing Director Linton Dowling– this recognition belongs to you!

Meet Raintree’s June Consultant of the Month: Jason Killough

Meet Raintree’s June Consultant of the Month: Jason Killough

Our June Consultant of the Month, Jason Killough, is a franchise consultant who has made every person at Raintree he’s worked with feel like family. We truly appreciate these types of authentic relationships, so felt it would be fitting to get to know a little bit more about Jason through our Consultant of the Month program!

Tell us about your journey to franchise consulting

I have been in franchising since 1993! I went to school for international relations and wanted to go the foreign service route, but a few years out of college I landed a job with “I Can’t Believe It’s Yogurt,” a frozen yogurt franchise based out of Dallas. It allowed me the opportunity to travel the world, where I sold master franchises internationally. It was a great way for me to start my career in franchising as a young guy in his twenties fresh out of college!

After that I moved onto Jani-King, helping them open international master franchise offices and coaching master franchise owners how to sell unit franchises.

The international travel was fun for a while, but in 2000 I flipped to domestic franchising. I eventually became the VP of Franchise Development of HomeVestors (We Buy Ugly Houses), leading the franchise development department and team.

In 2009, I decided to join a smaller franchise consultant network, The Entrepreneur Authority, to combine my years of experience in franchising with my passion for coaching and helping others take control of their lives and become their own boss. We partnered with IFPG a few years ago which has been a fantastic relationship!

Raintree's June 2021 Franchise Consultant of the Month- Jason KilloughWhy do you think you have found such success in franchise consulting?

28 years in the industry does not hurt. I have also had the opportunity to have been mentored by some of the top franchisors and executives in the business. My background and depth of knowledge gives me credibility to my candidates, which makes a major difference. 

I also have a genuine interest in helping people. I take the time to get to know my candidates and understand their ultimate goals. From there, I am a matchmaker, not a salesperson. Candidates do not want to be sold, they want to feel like they are buying a franchise. 

What is your favorite thing about being a franchise consultant?

My favorite aspect of consulting is not only helping my candidates find the best fit franchise for them, but helping them find great success. My ultimate goal is that they become top-performing franchise owners in whatever system they join. That should give any good franchise consultant the greatest level of satisfaction because it is a sign that it was a perfect match! I love hearing from franchisors about how my candidates are doing. For example, one of my candidates was rookie of the year for large mature franchisor – how cool is that?  Another has consistently been the #1 franchisee in their system with over 100 franchisees.

What advice do you have for other consultants?

  1. Be honorable and honest! Your candidates are making a major, life-changing decision and they need to be able to trust that you are guiding them in the right direction.
  2. LISTEN to your candidates. Collect a great amount of information/data so that you can paint the picture of who they are, where they came from, where they want to go…there are so many moving parts to finding the right fit franchise.
  3. Provide the value add of being a coach and advisor. Connect them with funding partners, accountants, franchise attorneys, and anyone else who can help them on their journey of making an informed business decision. Use your resources!

 

Thank you, Jason, for your continued partnership and for taking the time to share your story with us!