Gardere

The Franchise Decision is Personal

By Joyce Mazero, Partner and Co-Chair, Global Supply Network Industry Practice GARDERE WYNNE SEWELL LLP

AUSTIN

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DALLAS

| DENVER

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HOUSTON

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MEXICO CITY

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gardere.com

Accessing the Right Resources •

Diligently investigate the franchise opportunities of greatest interest.

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Engage a knowledgeable franchise lawyer and a knowledgeable financial advisor or business consultant.

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Check out the International Franchise Association site at www.franchise.org.

2

Financial Performance Representations •

FPRs reflect data ranging from annual gross sales to a full profit and loss statement.

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Meet with existing and former franchisees to confirm or obtain additional operating data.

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Review with your franchise attorney and financial advisor.

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Request the substantiating data supporting the FPR from the franchisor.

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Request a supplemental FPR if you want specifics highlighting operating information about selected locations, or featuring years of operation, variations in services or geographic differences among units.

3

Approved Suppliers, Purchasing Requirements and Rebates FDD includes information on: •

How the franchisor selects and approves suppliers, products and services;

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Whether the franchisee will be required to purchase from specific sources including the franchisor or a related company;

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Whether the franchisor will derive revenue from those purchases, such as increased margins, rebates, or discounts;

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Whether those funds are reinvested in the franchise system; and

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Assess financial impact on business.

4

The Franchisee Network

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Item 20 of FDD includes a list of the franchisor’s existing franchisees with contact information and a list of terminated franchisees as of the franchisor’s most recent fiscal year.

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Item 20 also contains information about projected openings during the next year, closures during the prior year and a good sense of whether unit openings are keeping up with the development rights granted.

5

Management Team, Litigation and Financial Statements •

FDD is starting point for networking with franchisees and suppliers who have a history with the franchisor.

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FDD provides information about franchisor’s management team/litigation filed against/by franchisor.

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Information may include important red flags about a franchisor’s culture including repetitive litigation: •

Against franchisees for unpaid royalties;

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Against the franchisor for misleading FPRs; or

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Against the franchisor promised services.

for

failing

to

provide

6

Realistic Negotiation of Franchise Terms •

Franchisors typically restrict negotiation to certain types of issues (e.g. number of units to be developed, timeline for development, geographic area to be developed, financial assistance and fees).

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Some franchise programs may feature phased-in requirements for training, FFE, technology and marketing for experienced franchisees or unique markets.

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Prospects in new additional and/or training assistance especially as such customer.

or emerging markets may need market-specific advertising and relevant to the prospect's needs, relates to attracting the Hispanic