You may have tons of reasons why you haven’t started your business yet, but once you get it running, there’s no reason not to get a franchise lawyer! Franchise attorneys help franchisees BEFORE they buy the business. They assist in ensuring that the franchisee understands all of their responsibilities that they are accepting as a franchisee. Much of this conversation Amanda and Lance are discussing what she will be doing with FDD(franchise disclosure doc review) prior to anyone signing the franchise agreement! (Unless you already have one!) It’s like having a family doctor or a dentist for your business... You won’t always run into legal problems, but when you do, it’s nice to have a dedicated specialist you can rely on to check up on your business and prescribe you with legal remedies. Doesn’t this advice raise so many questions? (Like what kind of legal matters are we talking about? Does it have to be a franchise attorney? Can’t any lawyer get the job done?) We’re hoping it does! Because then, it’d be the perfect opportunity to introduce Amanda D. Dempsey, Esq.! Amanda is a shareholder for Saxton & Stump, practicing under the name Kent Dempsey Franchise Law. Amanda concentrates her practice on the representation of emerging and middle-market franchise brands. She assists U.S. and international franchisors with all aspects of owning and operating franchise businesses, including the drafting and negotiation of franchise agreements, preparation and registration of franchise disclosure documents, and regulatory compliance and dispute resolution. Amanda also represents franchise clients in mergers and acquisitions and other corporate transactions involving franchise businesses. Amanda also focuses on intellectual property matters including IP asset protections, portfolio management, U.S. and International trademark protection and brand development strategies. That’s a lot of things you’ll be interested in once you start owning your own franchise business! And even before you get started, you’d definitely be interested in knowing about franchise disclosure documents (FDD) and franchise agreements, all of which a franchise attorney can help you with! Woah, what’s an FDD? Why do I need to be familiar with it before starting my business? What other benefits do I get from having a franchise attorney on my side? Tune in to our Podcast to learn more about everything you WANT and NEED on franchising, investment, financing processes and options. This is Eye On Franchising, where we share our vision for your franchise future. https://www.facebook.com/lance.graulich https://ionfranchising.com/
You may have tons of reasons why you haven’t started your business yet, but once you get it running, there’s no reason not to get a franchise lawyer! Franchise attorneys help franchisees BEFORE they buy the business. They assist in ensuring that the franchisee understands all of their responsibilities that they are accepting as a franchisee.
Much of this conversation Amanda and Lance are discussing what she will be doing with FDD(franchise disclosure doc review) prior to anyone signing the franchise agreement!
(Unless you already have one!)
It’s like having a family doctor or a dentist for your business...
You won’t always run into legal problems, but when you do, it’s nice to have a dedicated specialist you can rely on to check up on your business and prescribe you with legal remedies.
Doesn’t this advice raise so many questions?
(Like what kind of legal matters are we talking about? Does it have to be a franchise attorney? Can’t any lawyer get the job done?)
We’re hoping it does!
Because then, it’d be the perfect opportunity to introduce Amanda D. Dempsey, Esq.!
Amanda is a shareholder for Saxton & Stump, practicing under the name Kent Dempsey Franchise Law.
Amanda concentrates her practice on the representation of emerging and middle-market franchise brands. She assists U.S. and international franchisors with all aspects of owning and operating franchise businesses, including the drafting and negotiation of franchise agreements, preparation and registration of franchise disclosure documents, and regulatory compliance and dispute resolution.
Amanda also represents franchise clients in mergers and acquisitions and other corporate transactions involving franchise businesses. Amanda also focuses on intellectual property matters including IP asset protections, portfolio management, U.S. and International trademark protection and brand development strategies.
That’s a lot of things you’ll be interested in once you start owning your own franchise business!
And even before you get started, you’d definitely be interested in knowing about franchise disclosure documents (FDD) and franchise agreements, all of which a franchise attorney can help you with!
Woah, what’s an FDD? Why do I need to be familiar with it before starting my business? What other benefits do I get from having a franchise attorney on my side?
Tune in to our Podcast to learn more about everything you WANT and NEED on franchising, investment, financing processes and options.
This is Eye On Franchising, where we share our vision for your franchise future.
https://www.facebook.com/lance.graulich
[00:00:00] LANCE: Welcome to Eye on franchising. Are you looking for business opportunities? Well, you are in the right place. We represent over 650 franchises and business opportunities. We will help you find your perfect franchise for free. We even have a free assessment on our website that will help us determine what the best businesses for you based on your investment level mindset, skillset and life experiences this is Eye on franchising, where we share our vision for your franchise future. I'm your host, Lance Graulich each week, we will speak to fascinating folks from the world of franchising, franchise owners and founders, franchise, funders, and franchisees are you looking to find your perfect franchise or perhaps you are an independent business owner looking to grow and scale your business by setting up a franchise, either way, our team can help you. Eye on franchising where you will [00:01:00] learn the A to Z of franchising
[00:01:06] Welcome everyone to another great episode of Eye on franchising. This is your host Lance Graulich and today another very, very special guest. This is the first legal person we've ever had on Eye on franchising. And she is let's see, she's a dance teacher, but most importantly, she is a franchise attorney from Kent Dempsey franchise law. Amanda Dempsey. Welcome Amanda
[00:01:35] AMANDA: hi, thank you so much for having me. I'm so honored to be the first legal guests that you've had on the podcast.
[00:01:42] LANCE: Ladies first as well, besides being fantastic, but you are, so here you are.
[00:01:47] AMANDA: Thanks so much this is gonna be fun
[00:01:49] LANCE: well, tell me a little bit about how Amanda Dempsey got into the world of law as well as franchising.
[00:01:56] AMANDA: Yeah. So I like to say it's kind of a series of happy [00:02:00] accidents. And so I guess the first, you know, how did I become a lawyer? That's a good question. So I, I was graduating college. I was a psychology major. I come from a family of psychologists. My dad's a psychologist. I thought, oh, definitely gonna do that and I kind of just did a heel turn and thought, ah, maybe I'll try something a little different. I wasn't really sold on the whole like researcher aspect. And so I said let's, let's try law school. So I, I took a year I worked for a year between college and law and law school. And I've worked for a legal department actually commercial real estate firm that had a legal department just to see whether it was something I liked and I absolutely loved it and went to law school instead of continuing on with my psychology studies. And I find that honestly, it's like pretty transferable the skills I learned as a psychologist. Cause I do counsel people literally every day. Just in different ways I counseled them about their business and not so much about well so that's really great because a lot of those skills have really served me [00:03:00] pretty well. And then with the franchising part of it I graduated from law school at a really terrible legal market. And I was kind of, you know, just bouncing around for a little bit. I, I clerked for a year. I worked for a small firm and then I started working for another small firm who had a partner that needed someone to work a franchise MNA deal. And I knew nothing about it. And I was kind of agreeing attorney and
[00:03:22] LANCE: That would be mergers and acquisitions.
[00:03:25] AMANDA: Yeah. Yeah. So it was a large I would say actually, A midsize franchise company that was being purchased by private equity and he needed someone to help. And I was, you know, kind of had time and I was eager. And so he's like, yeah, like, let's see how you do. And I have been blessed to work with Tom Kent ever since. So yeah, he worked started his career legal career in-house at Cottman transmissions and always worked in franchising ever since then. And then I. Started working for him as a very young attorney. And I've been working with him for [00:04:00] him and now with him ever since
[00:04:02] LANCE: I love it. And I noticed I paid attention. When you said the heel turn, you made a heel turn. So is that a dance move? Is that what that is?
[00:04:09] AMANDA: That's right, I do try to incorporate, incorporate some dance lingo of, I am a crazy person that works two jobs and I am a competitive dance teacher. I do that couple of days. Yeah. After work, if you can believe it. So you, people may have seen me and my franchise friend, Allie, cross doing some Tik TOK moves at one of the conferences. I'll just leave it at that, but
[00:04:34] LANCE: I
[00:04:35] AMANDA: love it It's nice,, it's nice to have some type of outlet that's not work. And so that's what I do with that time.
[00:04:41] LANCE: Fabulous. Well, we have a lot to discuss today. So as I speak to people daily, About Business opportunities, franchise opportunities. It comes up all the time. As they get closer. Should I have an attorney? Should I? And I said, well, yes. And they said, well, sometimes people say [00:05:00] to me, I have an attorney. And I said, are they a franchise attorney? Well, no, they're a business attorney. They know everything. And I was like, whoa, whoa, whoa, whoa, whoa, wait. Would you go to you know a heart surgeon to have them examine your teeth? You know, I mean, at the end of the day, there are specialists in law, there's specialists, in medicine, et cetera. So what do you, what do you say to that? You probably see that a lot right?
[00:05:26] AMANDA: I do. And I would say that's a great analogy. I mean, we all do have specialty areas in the law now. I shouldn't say everybody, but most people at this point, there's not a whole lot of generalists left. And it's because the law is complex, you know, just Like anything else in professional services, there are areas that you can specialize in. What I tell people, and I do have many people that contact me and they say, you know, I have this family friend, who's an attorney and I always use him and I might still want to use him, but just tell me what you can do. And so, you know, I'm not there really to tell people what to do. But I will tell them, you know, honestly, that. [00:06:00] I can probably myself or another franchise attorney that specializes in, in in franchise law can probably help them more efficiently and certainly more effectively. So. We're very familiar with the documents that are required to start a franchise and what a franchise or must disclose to PR to prospects. So we're going to be able to tell you within the first five minutes of looking at that document, a whether it's compliant or not, and B whether this is a risky investment or not that's not to say that somebody couldn't try to get themselves up to speed, but they're not going to be able to do it in five minutes. So I can do those things very quickly. And efficiency in the law, certainly. I mean, for many clients will probably save them money because you know, we're paid by the hour, generally speaking. So you know, that efficiency is going to help. And then the other thing is like certainly effectively, right? So we have an expertise in this area of law. We're going to be able to tell them whether a certain offering is, you know, contains industry standard terms. Whether they're [00:07:00] reasonable, given what we see out there in the marketplace. And so, you know, those things are, are things that we've just been able to get up to speed with over time and really become experts in. So I generally do recommend that in this area and most areas, honestly, that you contact a specialist and not just kind of a general business attorney.
[00:07:19] LANCE: Exactly. And so, so let's, let's kind of dive in now When it comes to the world of franchising. Some people definitely some clients of mine when they first contact me, there are plenty of people that it's their very first time looking at a franchise business or even a business at all. And there are other people that are serial entrepreneurs and in some cases have still never looked at franchising. Some people definitely seem to be a little surprised that franchising is regulated by the federal government regulated by the federal trade commission. And In, in theory, that's actually very good that there is some regulation to it. I've compared franchising to licensing as a non-attorney of course I play one on TV. [00:08:00] No, I'm just kidding. But
[00:08:01] AMANDA: Books are very helpful the books in the background there. That makes sense.
[00:08:04] LANCE: Exactly. I'm sure I have a book on it somewhere or 10. No, but I, I explained to people, I said, look at like a typical licensing deal. Pretty loosey goosey it's about products or an individual item and not an entire system and not you know, trademarks and all of these things, you know? So franchising it's about exercising control. So really everybody can benefit. I often equate franchising to any relationship, but like, like a marriage, if somebody really wants a, a prenup there, what does it do? It lays out what both parties are expecting and what everybody's responsibilities are. So without further ado, we're going to talk, we're going to dive into the components of what really makes a franchise system on the legal side. Obviously there is a franchise disclosure document. An [00:09:00] FDD is what some people typically refer to it because it's much shorter. And then you have the franchise agreement, which is the actual contract that's signed for the franchise. So we're going to have a little fun right now because the franchise disclosure document has 23 items. 23 items sections, but they are called items. And we're going to, we're going to sort of quiz Amanda and help her educate the, all of these listeners, all of you out there on all 23 items and really the highlights in 15 to 30 seconds of what each of these are. So, Amanda, you ready? Do you accept this challenge?
[00:09:40] AMANDA: I do. I mean, so I, and I do accept the challenge. I think I'll try to keep it as brief as possible, but I'll just say from the outset. These are FDD's are something that I draft every day. Right. So I'm familiar with the items, but I, I do want to make the document as approachable for people as I can, which is why I'm agreeing to do this challenge. [00:10:00] It should not be scary. It should be. And it is scary. I know it is because I'll tell you that the very first time I ever had to write one, I was terrified. So I know that it can be intimidating. But it's really there to help a prospect make a great decision about their purchase. So whether the offering is for them and it's really there for them, it's not there as a barrier for them. So I. Love that we're going to do this and break this down for people so they can understand
[00:10:27] LANCE: and, and before we kind of put us on the clock doing this task, I just want to also say, as a disclaimer, I help people every single day because I've done this for almost 27 years now. I help people every single day, dissect a franchise disclosure document. And then at the point that they're actually ready and decide that they want to go through the process of really. Pursuing this one particular brand, whichever brand it might be, you have the 700 plus that I represent my team represents. And, and then the question [00:11:00] comes, well, we should probably hire an attorney Yea call Amanda. That's fine. So so but, but there's plenty. Yeah. There's plenty of help no I always encourage people because you want to know what you're getting yourself into. So, so here we go. Hold on your shorts. The, the franchise disclosure document we're going to start right now. Item number one is,
[00:11:26] AMANDA: so that is the information about the organization of the franchise or, and its parents affiliates and predecessors. So what that means is just the company that runs the franchise system. Any other prior owners. How long they've owned the system, who their parent companies are, whether they have affiliate brands, all of that information is going to be an item one.
[00:11:47] LANCE: Perfect. And I obviously I have a cheat sheet right in front of me because I do not know all of it by heart like you. So the franchise or company history is item one item two
[00:11:57] AMANDA: Item two is the business experience of the [00:12:00] principles. So those are primarily the people that are listed in item two are primarily the people that you're going to interface with. So the people that run the day-to-day operations of the franchise and their biographies are listed in that section. So it's a five-year five-year look back at least a five-year-old. For each of the, basically the major players that are operating the franchise training, you making decisions on behalf of the brand, stuff like that,
[00:12:22] LANCE: So beware if you're talking to somebody that presents themselves as an owner or key executive in they're not in this.
[00:12:29] AMANDA: Yeah. I mean, the other important thing about item two is that anyone that's listed there also has there's other places where they might be listed. So in the bankruptcy section, for example, or in the litigation section, You have to, there are certain people that have to be listed in item two, and then there are other things about them that'll appear throughout the document. So it kind of gives you an idea of who you're working with. And that's always good to know
[00:12:53] LANCE: exactly. Which brings us to item three, which is the litigation piece.
[00:12:57] AMANDA: Yeah. So the litigation piece, I always love when it's [00:13:00] empty, but sometimes it isn't and that's okay too. The litigation section just gives you a disclose a certain types of litigation about the franchise company. So if there's been franchisee franchise or litigation in the last year if there's been office hours in that office actions, if there's been. Any type of activity between a state examiner and the franchisor in the past several number of years. I mean the time periods vary if there's been any fraud or allegations of fraud against the franchise or in the past 10 years, that's in there. So there's several categories of information. It's certainly not every slip and fall, but anything that, that FTC. Relevant to your decision to purchase a franchise would be in item three and not all litigation is bad. So I always say that there's some litigation that's good. Sometimes it shows that the franchise worth protecting its system. And that's what you want. So it's, that's a good question. A good area to ask. If you do hire an attorney to help you, because we can tell you you know, whether that those items litigation are, are areas of concern or [00:14:00] areas interest
[00:14:01] LANCE: I did have a recent instance where a prospective franchisee saw that there were a few pieces of litigation. And in both instances it was franchisees sewing the franchisor which can be. Implied that, well, I guess it's better than the franchise or going after everybody, but that's a whole other story.
[00:14:24] AMANDA: Yeah. I mean, sometimes it also depends. I mean, if you have a system that has 700 franchisees and there's two items of litigation, it's not necessarily a red flag. I mean, you can't please, everybody. That's the same in all, in all businesses. There are some times disputes. It doesn't mean you have to run away if there's two unhappy franchises out of 700, but you know, it's things like that that you just have to consider as you're going through it. Not all litigation is bad. Certainly if there's none, then you don't have really anything to worry about.
[00:14:53] LANCE: Perfect. Item four,
[00:14:56] AMANDA: Item four is the bankruptcy history of the franchise, or, and [00:15:00] then also of the principles that are listed in item two. So and they have to be listed for a period of ten years again, I've had several, you know, I've worked with several brands that have bankruptcy history. It's not always bad sometimes. You know I worked with one brand that had the, basically got into franchising because of a personal bankruptcy that they went through. They you know, lost a job and they decided to kind of go after this passion of theirs and then. We're very successful and started the franchise. So it's not always a bad story. Sometimes it's a good story, but it's there for you to kind of assess one way or the
[00:15:31] LANCE: Great Item five, I happened to know his initial fees.
[00:15:36] AMANDA: Yeah. So I always say items five, six, and seven are your money items, right? So it's like a money shot or your money items. So. Yeah. So I don't five is the initial fees for the that, that the franchisee needs to pay to franchise or before opening. So it's not every dollar that you'll ever have to spend to get this franchise up and running. [00:16:00] It's what you paid. Generally the initial franchise fee is listed there and there may be some others like grand opening advertising sometimes shows up. And if there's any like maybe like initial equipment package, stuff like that. So there's, those are the types of things that appear in item five. And the key for that one, there's always like there's some distinguishing factors of each of these, the items and the one for item five is that it needs to be paid before you open.
[00:16:22] LANCE: Yep. I remember when I was with Wingstop, there was a decor fee. They'd have somebody from corporate come in and decorate with all the airplane parts back in the old days.
[00:16:32] AMANDA: Yeah. There's some brands that I represent that have like pretty significant like initial package, like things that you have to buy before you can get started. And so the rationale behind that item is obviously you need to have that money before you can, you know, get open. So everybody needs to know like what that dollar amount is.
[00:16:49] LANCE: So item six where the other fees and then item seven was the initial investment
[00:16:54] AMANDA: yeah. So item six is other fees. What that means is these are other [00:17:00] fees that you will pay to the franchisor, or that run through the franchise or during the term of the agreement. So this is where your royalty is going to show up marketing fees, certainly, but there's other things that show up there that are somewhat, maybe people might not think about, like if there's a technology fee that you pay. You know, maybe the franchisor has a vendor that they use for the marketing on behalf of the franchise for, you know, web marketing. If you have to pay that to the franchisor and it's a pass through, it'll appear in that item. So it's, again, it's not every dollar you're going to have to spend, but it's every dollar that runs through the franchise. or to the franchise
[00:17:37] LANCE: got it. And then the initial investment is basically everything right. Or supposed to be.
[00:17:45] AMANDA: It is everything that you, so it is, it is what the franchisor estimates you will spend prior to opening. And then also within the first three months of operation. So it's your initial. Yes. It's your full [00:18:00] initial investment from date of signing to three months after opening and they, they say three months, some franchisors actually go further than that because they're giving three months as like a baseline of, you know, basically when you probably won't be turning a profit at least, or at least breaking even. So they use that as, as kind of a benchmark.
[00:18:18] LANCE: You're on a roll item eight
[00:18:22] AMANDA: item. Eight is yes. So restrictions on the sources of products. So this one is, is interesting. I think sometimes it gets glossed over, but it's a good one to read. So item made is where the franchise or explains restrictions that the franchisee will have to abide by with how they operate the business. So it explains to you. What types of products and services you can sell from your franchise and what things you're not allowed to sell. So you gave a good example earlier when we were chatting that, you know, if it's a restaurant that sells cheeseburgers, you might not also [00:19:00] be able to sell. And so those types of things are going to be at least summarize and item eight. A lot of the details are generally given to you in training or in an operations manual, but that's where the franchisor explains, you know, whether there's going to be restrictions on what you can sell. The other thing that appears there is like the restrictions on. Where you can get certain things. So like where you can purchase inventory where you can purchase equipment. Generally franchise orders have some type of control over the suppliers and the vendors that you use. So that information is going to be in that section. Also
[00:19:35] LANCE: love it. Let's go to item nine franchisees obligations.
[00:19:41] AMANDA: Okay. So item nine as a, is really a chart. And that that refers back to several sections of the franchise agreement that sets forth your obligations to the franchise or throughout the term of the agreement that. It's an easy reference, I would say, but I think a lot of people don't go [00:20:00] back and look at those sections of the franchise agreement. So I always, one of my jobs as a franchise attorney is to kind of highlight what those sections are that are referred back to because you do have obligations as a franchisee. You know, that vary from. Site selection, things and other things that are really kind of part of establishing the business, but then also there's kind of confidentiality requirements and non-competes and stuff like that. So there are sections in the franchise agreement that detailed them and the chart in item nine
[00:20:31] LANCE: yeah. Perfect. And now we're onto item 10 financing if there is any
[00:20:37] AMANDA: Yeah, so I Item ten is an interesting one if the Franchisor offers financing for anything. So whether it's, you know equipment purchases or they finance the initial fee, all of that information will be an item 10 a lot of them are blank. Cause franchise wars might not do that. But if they do they have to, they have to explain kind of what the financing terms are and whether they're uniform for everyone.
[00:20:56] LANCE: And that's the key. This is specifically relating to any [00:21:00] financing that the franchisor might be doing. Like you said, it could very easily be blank.
[00:21:04] AMANDA: Yes. A lot of times it is
[00:21:06] LANCE: yeah. And item 11.
[00:21:08] AMANDA: I know 11 is a doozy. There's a lot there. So. This one is a lot like item a we're kind of talks. It talks a lot about the, the system and system standards. The beginning of item 11 talks about what the franchise, his obligations are to the franchisee both pre opening and then also post opening. So they'll tell you kind of what they'll assist you with and what they don't assist you with throughout the term of the agreement. And I always say again, this one's long and people gloss over it. There's a lot in this item, but it's important. It does set forth a lot of, kind of the day-to-day operations type things that happen in the franchise. So franchise wars assistance is there there's also a section that talks about kind of the computer requirements and all of the tech requirements that you you'll have. And then one of the biggest parts of item 11 is it talks about training. So it talks to you about what the [00:22:00] training program is going to look like, where it's going to be, who is going to administer it. I always say, this is another one that's kind of a big one that people don't think about because sometimes training can last for days and it may be onsite at the franchisor's location. So you have to, and sometimes weeks, not just eight weeks. Yeah. Yeah. So especially in like restaurant concepts it tends to be quite long. So I always tell people, they just need to make sure that they're okay with traveling for that amount of time. And there's an expense going into that as well. So
[00:22:27] LANCE: I had a gentleman recently. Read an FDD before he ever engaged any attorney of course, and said, yeah, I'm not, I'm not going to training for 10 days out of state. That's not happening. And I said, well, that's probably not the franchise for you then.
[00:22:41] AMANDA: Yeah. Yeah. I will say luckily, a lot of franchises, so started to do more of like a hybrid you know, online in-person thing. And then some of them will have training at your location, which is really nice. Like when you. I think just because of a pandemic related things that people have gotten more nimble with that. So sometimes trainings aren't as long as they used to be, but I've definitely represented [00:23:00] concepts where the training was. Sometimes it was like six weeks. Because if it, you know, if you're like learning recipes and all of that, maybe they weren't.
[00:23:06] LANCE: I was gonna say, especially restaurants.
[00:23:08] AMANDA: Yeah. Cause you gotta learn everything so how to operate the whole restaurant. So it can be a lot
[00:23:14] LANCE: item 12, the territory.
[00:23:17] AMANDA: This is another important one. Okay. I'm starting to say that they're all important.
[00:23:21] LANCE: This is an important document, Amanda.
[00:23:24] AMANDA: Jeez, can you tell them this is how I spend my life now I have to find importance. No, it, it is important. This one is this item 12 is where you where the franchisor will explain what the typical territory is. So, and, and what that territory. So some franchise ors will provide an exclusive territory, meaning they're not going to sell other franchises within a certain radius or population. Others have no exclusivity. I've seen more and more of that. Especially as concepts you know, kind of work from home or they're, you know, a remote service or something like that. So that's, it's just important because you just, you you'll learn from day one, basically what [00:24:00] the territorial protections are gonna be. And, you know, basically how, how friendly your neighbors might be and how close they might be to you. And and there's value in that. There's value in that, because if you're spending a lot of money and you have a very spend, you have very little protection, sometimes it does not yeah, it might not make sense. So that's a good one
[00:24:18] LANCE: I have some home services brands. They do like 75,000 or a hundred thousand single family residences within a certain income category. Cause so obviously you can get pretty specific.
[00:24:32] AMANDA: It absolutely can. And there's a couple of things to think about in that, like, you know, whether you can accept jobs from outside your territory, if you don't solicit them. So some of the territories are really just about where. And you can accept customers from wherever others, like in a home services type business, as you said, they're probably going to be slightly more restrictive because they want the franchisees to have a bucket of people that they can service and they don't want, you know, franchisees crossing those lines. But so yeah, it's just, yeah, so it's, it's [00:25:00] nice to just take a look at that and figure out how that's going to work, because it does vary depending on the type of business. And you want to make sure that you're not you know, just, just have no protection at all
[00:25:09] LANCE: yeah, perfect item 13 trademarks.
[00:25:13] AMANDA: One of my favorites. So this is the section that shows the franchisee, what marks are associated with the franchise. And when I say marks, that can be a logo, but it can also just be a name. It can also be a tagline. Sometimes it's just a singular image. Sometimes there's one mark. Sometimes there's 20 marks franchises vary depending on how many days. One thing I do when I represent clients is I go on the U S PTO database. And I make sure that all of the marks that are listed in that section are actually active because if they're going to be licensing them to you, you want to make sure that they're protected. Some brands don't have a federally registered trademark and that's okay too, but it's just something to know and understand. That's had more vulnerability there with those marks. And that part's really important also just because that's really, the brand recognition is what you're buying. Right. So you want to make sure that those marks [00:26:00] are protected and the franchise owners doing our job, keeping up with the registration and renewal of those trademarks.
[00:26:06] LANCE: Wonderful item 14 kind of similar.
[00:26:11] AMANDA: Yeah. So 14 is patents and copyrights and confidential materials. Some systems have patents, I would say far less than the trademark section. Certainly. But that section will also include things that they consider proprietary information of the company. So it may be like a recipe booklet. It may, the operations manual is usually considered confidential and proprietary. So it just explains, you know, whether they have those things and then what the protections are
[00:26:37] LANCE: or the secret sauce.
[00:26:39] AMANDA: Yeah, exactly. That is a big deal Absolutely
[00:26:44] LANCE: item 15. One of my favorites actually is item 15.
[00:26:47] AMANDA: Yeah. 15 also very often gets looked over. So 15 is the amount of time that you're required to dedicate to the business as the franchisee. Now, some people might think that's like a bit of a silly item because they'll say like, [00:27:00] well, I'm buying a business. I'm going to be there full time, but that's not always the case. Some people that are investing in franchise. Really are looking for something that's part-time or they want to hire a manager to operate it for them, or they want it to be maybe semi absentee there they're part of the time they can hire somebody to be there part of the time. So it's really important if you're looking for one of those situations, if you want full time, if you want to, you know, be more of it, you want it to be more of an investment. You don't want to be. 40 hours a week. Then you know, that section is where that information will appear. So you need to take a good look at that and see whether the franchise work requires you to participate in the business on a full-time basis or part-time, etc.
[00:27:39] LANCE: Wonderful. Yeah. Two examples of that fast signs and great clips off the top of my head. They want full time owner-operators so if you intend to be passive or a semi absentee owner, that is not the brand, those are not the brands for you. And item 15, probably remind you of that [00:28:00] item sixteen
[00:28:01] AMANDA: 16 has restrictions on source of products, right? Or is that
[00:28:04] LANCE: restrictions on what the franchisee can sell?
[00:28:07] AMANDA: Yep. Yeah. So we talked a little about, a little bit about this in eight, cause they're very similar items, eight and 16. Yeah, we did. We talked about hotdog. So 16 is explicitly where you will where, where they'll tell you, you know, what you can sell from the franchise and what you can't. If there are restrictions. I have a really old school example, actually, this is a great one. So one of the brands that I represented or that I have, I still represent, they had been around since the seventies and there was. There was, I guess, initially they were permitted to have those cigarette machines in their stores or, you know, put in like, I don't know, a quarter or like whatever it was.
[00:28:44] LANCE: Was there a payphone too?
[00:28:46] AMANDA: Yeah. And like a pack of cigarettes would pop out, you know? So that is no longer permitted on the they've moved away from that model is what I'll say. And so those types of things where you're permitted to sell. And [00:29:00] sometimes it's funny things like, you know, some people might wanna put a vending machine in there, like skating rink or whatever it is, you know? And so all of that stuff, at least references to that are going to be in that section. And they'll tell you, you know, whether or not you have the Liberty to do that with or without the franchisors permission.
[00:29:17] LANCE: Yeah, exactly. Perfect. Item 17, the renewal termination, the transfer dispute resolution.
[00:29:24] AMANDA: Yeah. So 17 is a lot like nine in that it refers back to terms in the franchise agreements that are very important. Some of them are basically your renewal rights. So whether or not you can renew the agreement, some people may not know, but most. Really almost every franchise agreement I see now has a limited term of years. So it's not an evergreen agreement. You're not buying the right to operate this business for the rest of your life, for the rest of the natural, you know, somebody else's natural life. There's a term of years. And so there is a renewal components to the agreement and that would be referenced in the FDD. And then they also reference you back to the [00:30:00] section of the franchise agreement. The other two, well, there's quite a few big ones. Some of them are then the covenants. So the non-competition covenants almost every franchise agreement, I would say every, but almost everyone that I've seen has some type of non-competition component to it after the exploration of the franchise agreement. So that's going to be. Dispute resolution. So what method the franchisor requires you to deal with commutes with them? So some of them require mediation, or you have to meet at home office before you can litigate. Some of them require arbitration as opposed to litigation. One of the most important things is the venue. So sometimes they'll require that out of state for you. So you need to be aware of that
[00:30:40] LANCE: Home court advantage usually for the franchisor
[00:30:43] AMANDA: yeah. Yeah, there's a, there's some strategic component to that. Certainly. If there's a personal guarantee requirement, that's going to be listed in 17. So again, a chart that people, a lot of times don't look at in depth, but that's part of my job is to kind of go through that with everyone and, and [00:31:00] explain kind of termination is another huge one, which I think you mentioned, but I didn't ways in which the franchise were, can terminate the agreement and essentially. The business relationship,
[00:31:08] LANCE: especially if you don't stop selling hotdogs when they've told you to,
[00:31:12] AMANDA: Yeah or if you don't pay them or something,
[00:31:14] LANCE: or if you don't pay them. One of the questions I had on renewals, although it's not exactly automatic, it is almost automatic. If you're paying a fee, if there is a fee, as long as you're in compliance, it is essentially.
[00:31:29] Almost automatic in some, in some cases, maybe not from a legal, completely legal perspective, but explain that a little bit.
[00:31:35] AMANDA: Well, yeah, so renewal's an interesting one because there are some states out there and we can talk a bit more about this. Maybe we need to do a state rundown one time on this call, but there are some states that govern the franchise relationship and they, they do have prohibitions against a franchise or either terminating or non-renewal. Basically so long as the franchise, the franchisee is complying with their agreement. So if they're in [00:32:00] compliance with the agreement, the franchise, or can't just say, man, thanks, you know, we're done with you, right. Especially in the renewable space because you know, the franchisee wants to renew and they're willing to kind of pay the fee and they're doing what they're supposed to do. It makes it somewhat more mandatory for the franchise or to renew them in those certain seats. And there are about 25 of those states. So it's not, it's not insignia. The number of states that have some legislation around that you know, in other states it can be easier, you know, to, to non-renew. But generally speaking so long as you are kind of complying and being a good community member within the franchise, generally franchise owners want that continuity. And so they're gonna, you know, work with you.
[00:32:38] LANCE: Got it. Number 18 public figures. You know, Troy Aikman was a spokesperson for Wingstop when I was there in the Wingstop. So
[00:32:50] AMANDA: That's pretty cool. Yeah. So you know, I would say honestly, probably about like 95% of franchises have nothing in this session. I mean, most of them are not [00:33:00] advertising with celebrities, but if they have a spokesperson that's well known or celebrity, or I guess it doesn't have to be a celebrity, just anyone that really speaks on behalf of the franchise is getting. Information about those people has to go in item 19.
[00:33:12] LANCE: I helped fat burger on the corporate team a long time ago and good old magic Johnson was, was in that brand. In fact, in my room here, I do have the magic Johnson fat burgers signed picture.
[00:33:26] AMANDA: Yeah. Well, I, I think Shaq is going to be at the IFA this year. So I know he's doing, I know he's been associated with a few brands recently and then has his own, so. Yeah, exactly.
[00:33:37] LANCE: All right. So let's get to the best one item, 19 earnings claim, financial representation. Me the money section.
[00:33:48] AMANDA: Exactly. So item 19, I'll say even when I started doing this item 19 was even different than it is now. So there's been a lot of change with item 19 over the years. The [00:34:00] first thing I like to say about item 19 is it's optional franchise wars. Don't have to do. They don't have to include an earnings claim or include really any information at all about the performance of their units. So
[00:34:11] LANCE: they can't say anything about it.
[00:34:14] AMANDA: That's right. So if they don't include an item 19, then they can't talk about it. And so everyone should know that because if there isn't another 19 and they start talking about it, then you know, you can file that away for a rainy day. There are strengths and weaknesses to having an item 19. I actually prefer that clients have them personally because I think that it does having it there and having the parameters around it helps clients know what they're able, helps my client's franchise owners know what they're able to talk about. And then I also think. My franchisee clients in determining whether this is an opportunity that makes sense for them in a financial way. So, you know, there's a lot of ways to evaluate a franchise opportunity. One of them is obviously going to be fit culture fit, and I think that's very important and you get a lot of that from the other items in the, in the [00:35:00] FDD but the financial component and whether this is going to be what you want it to be from a financial perspective is going to come from item 19. And so You know, as we said, what's in item 19 is a, it can be a historical or production representation of how the units existing units in the system have performed. There's really no time limit on it so they can, the item 19 can be it can be several years, look back. It could be last year. The franchisor, can create that however they want. There are some parameters, of course it has to have a reasonable basis. In fact, so there needs to be based on something, some data that can be proven, but they're going to craft for you some representation of how the system is performing from a financial perspective. And again, the important things are. If there's nothing there, they can't talk about it. And what is there is the only thing they can talk to you about? So if it's not there, they can't talk about it anymore. And so sometimes you'll see super robust item 19 with tons of information, because then the franchise work and [00:36:00] talk about whatever they want. And then sometimes you'll see very limited information because that's all they want is right.
[00:36:05] LANCE: My favorite footnote to this is regardless. You can then have a validation opportunity speaking to existing franchisees and asking questions as part of this process, the franchise process. So Susie, you've been a franchisee of this brand for three years. You're making money. How much do you make? What are the margins like? And thankfully the franchisees are not bound by agreement
[00:36:35] AMANDA: that is true. The franchisees can speak to their financial performance, whether or not there is an item 19, just the franchise or cannot. So, you know, I even say in when I have a client that's looking at an opportunity, if there is no item 19, I mean, they can contact franchisees and ask directly. They can ask the question. Some people are not as comfortable doing that. And so, you know, I think you should get comfortable with it [00:37:00] real quick personally, but some people are not as comfortable with that. So it is nice when there's at least some baseline that they can say, this is what's in the. And then, you know, maybe compare some validation reports with other franchisees to what's in there.
[00:37:12] LANCE: Yeah, some of the best brands, some of the best brands do make it more comfortable for prospective franchisees because it's more of an organized validation process. They might hand the entire list of franchisees over and simply say, call whoever you want. They're expecting that prospective franchisees will call them. We're proud of our success
[00:37:33] AMANDA: sure certainly. I mean, the good ones will and. That takes us a little bit into item 20, but we can still, we can stay on item 19, but all that list of franchisees and all of their contact information is required to meet the school. It's funny. So it's usually in an exhibit because especially in systems where they have a lot of franchisees, it's quite long. But you do as a prospect, you do have access to all of the contact information for all of the franchisees in the system. And certainly one of my [00:38:00] biggest. Tips that I give people when I represent them is to certainly at least cherry pick some names off that list and call because you want to get, you know, some happies some warms and some not so happy so that you know exactly what you're getting into from all. All aspects. I also say it's good to call people that are close to for locations. Because they're going to be able to tell you how the brand performs in your specific territory and area. And that does make a difference in some brands. I mean, some brands are seasonal. You know, others, maybe it's just, you know, you don't know whether the concept, if it's a food concept, maybe it's regional, you don't know how it's going to perform outside of your area. So it's good to call those people. Especially if they're going to be your direct neighbors, because. You will probably work with them at some point and interface with them. So you want to make sure that those people are brand ambassadors and are happy to be getting a new keeper?
[00:38:53] LANCE: No, that that's, but these are great tips.
[00:38:55] I love it. I love it. So item 21 financial statements.[00:39:00]
[00:39:00] AMANDA: Did we skip 20?I talked about the list of it
[00:39:03] LANCE: You talked about the outlets, the outlet store counts, or
[00:39:07] AMANDA: Yea so item 20 also a bunch of charts. And again, it's just, that's where you get the information about how many have opened and closed in the last three years. So it's, you'll see trends there again. It's all dependent on how many units are there. I mean, you're going to see some turnover in these brands, no matter how many units they have, but certainly if there's like a 50% turnover in a year, that could be a red flag. So, yeah. So you want to just keep a look at that and see whether the franchise ores terminating a lot, whether the people are disclosing voluntarily whether there's been a lot of new openings, whether you know, franchise is really aggressive on selling right now. So. They can tell you a lot of different things, but it's got information be get
[00:39:48] LANCE: You are so good, so financial statements, back to that
[00:39:52] AMANDA: financial statements. So every franchisor has to provide, depending on how old they are, at least the balance sheet. Second year of operation [00:40:00] audited balance sheet, and then third year of operation full audit of financial statements. I always leave that up to the accountant to look at, but it does tell you kind of the cashflow, the franchise, or kind of where their money is coming from and where it's going. So I always like to look at that. I mean, I like to see kind of again, where it's coming from and where it's going, and that's kind of the most information that you can, you can ascertain from it. But there's, there's some good things to see there and they do have it typically as a three-year.
[00:40:29] LANCE: Perfect. And then as we wrap up, we have item 22 contract.
[00:40:34] AMANDA: Yeah. So these are all the contracts that you're required to sign throughout the term of the agreement. Sometimes it's like a software licensing contract. There may be forms of general release for when the contract ends. So they, they just provide you with the form so that you can see what they look like. And you know, what to anticipate telephone listing, confidentiality agreements, all of that stuff that the franchise, or might require you. As a franchisee, the franchise agreement is the biggest one, of course. But there's some others that, that might appear there as well. [00:41:00] And the forms of those agreements are all attached
[00:41:03] LANCE: and item 23, the fun one.
[00:41:06] AMANDA: That's the receipt. So I always say item 23 should be item one. I don't know why it's at the end. It's the very first thing you have to do. But what you do is there, there are requirements that FTC has requirements about how long a prospect must be given to read, to read the FDD before they have to sign the franchise agreement and provide funds. So it's at least 14 days, some states regulate over and above that. So when you get the document, you sign the bottom and you put the date on it, of the date that you received it. Not that you read it, but that you received. And then you keep one for your records and give the franchise or the other. And it's just important to kind of stop start the clock ticking on that 14 day waiting period. I would say most people will take longer than 14 days to get through the initial read and, you know, meeting with business advisors, et cetera, but you have to get the accurate date on there. So it's the very first thing you do. And it's the very last item of the FDD
[00:41:57] LANCE: Well and that concludes [00:42:00] the FDD rundown, wonderful them. See all 23 items of the FDD
[00:42:06] AMANDA: not too bad off the top of my head.
[00:42:09] LANCE: Well, you did that perfectly. Let's continue a little bit. So after all this, you know, we had to get, have you give the rundown because so many people have never really heard about each of these items and. I tell people all the time, there are people that come to me and they're like, I don't know if I should start my own business or I don't know what I should do. I've looked at MLM, multilevel marketing. I've looked at this, I've looked at that. And I always tell people, if you don't have an original idea that you think needs to be born like Facebook or McDonald's or Wendy's or whatever, it might be that there were founders associated with all of those particular brands. I mentioned. If you don't have an original idea, franchising is amazing because of the systems and procedures and what have you. And somebody has already really done the hard stuff. So what say you, the legal [00:43:00] mind, the legal Eagle, the award-winning franchise attorney, but what, what do you really tell people? You love the industry that you're in. So why?
[00:43:09] AMANDA: Yeah, I do. So that's interesting. I mean, one of the things I do love about work, so I work with both, you know, franchisors and franchisees. And one of the things I love about working with emerging franchise owners is you get to hear about all of these cool new ideas. Right. And I get to help, I guess, to take these ideas that they had, or these concepts that are like killing it in the market in which they. And really help them expand it nationwide and sometimes internationally. Right. So that is kind of the hallmark of franchising is that it's people with an entrepreneurial spirit. And as you said, some of them are the idea people and some of those are the execution people. So if you're the execution guy, right. If you know how to run a business and, you know, And you realize there's a concept that speaks to you again, you don't have to reinvent that wheel. Like somebody has that concept and maybe they need you the execution guy to help them, you know, kind of make this thing big. Yeah. And so in a lot of ways, I, you know, I, [00:44:00] I compare it to the arts and creativity because it, it, there is a creative components of being a franchise, or for sure, you have to have something unique that is different and scalable and, and, you know, competitive. But the secret sauce. Yeah. But everyone needs the execution guy too. Right. So if you have a history in business or if you just have a knack for it franchising is great for you because you're going to take this, this formula essentially, right? This recipe, whatever you want to call it, and you're going to make it work. I mean I've seen so many people that take a concept that maybe I wouldn't believe in, you know, I'm like, man, this thing's never going to work, but they're so great at business and marketing and development and hiring the right people and creating a positive work environment that they make this thing blow up, you know? And so those people are needed. Absolutely. I. You don't have to have the idea to be a good business person.
[00:44:50] LANCE: Yeah, exactly. And you mentioned emerging brands. How do we define an emerging brand today? Is it under 10 locations? 10?
[00:44:58] AMANDA: Yeah. I don't know. That's a [00:45:00] hard question. I mean, so it is, it's a smaller brand. I mean, it can be somebody that has, you know, an idea. It can be somebody that has a really successful regional concept. And they're trying to figure out a way to break it out of the region. It can be, so it doesn't even need to be 10. I mean, I've seen some like, probably upwards of 50 that I consider emerging because they're just, they're kind of stuck in a way, you know, like they're trying to get past a certain hurdle. And so they're emerging past something, right. And trying to get to the next part.
[00:45:29] LANCE: Well, a lot, a lot of it, a lot of it probably is also based on regions. There are some brands that might have 50 units and they're in the same state. They haven't even gotten out of their state yet
[00:45:38] AMANDA: exactly or they could be, maybe they're in Canada or, you know, maybe they're, you know, they're super popular in Canada, but they're testing out the U S market or, or something. I mean, any other countries.
[00:45:47] LANCE: Well I have a group in the UK, you know, in England that has 40 locations and they're signing deals all throughout Europe and Asia and they have zero in the U S and they're there, we're now selling in the [00:46:00] US And it's an incredible brand
[00:46:02] AMANDA: right. So, I mean, it's different everywhere you go. And I think, I think, you know, with the vastness of this country, it can, I mean, it can be different just, you know, from state to state or region to region. So I think, you know, emerging is it's all, I guess, in the eye of the beholder, but a lot of what I do is work with brands on all kinds of all kinds of aspects of bad, depending on what side of the spectrum they're in. But if they're really looking at growth, We strategize with them, you know, how do we do it? What are your, what are your challenges? What do you need to overcome? Maybe it's us connecting them with the right person. Maybe there is something on the legal front that they need to be, you know, more strict about, you know, maybe they're not enforcing system standards or whatever it is. But we do strategize with them and with their other advisors about, you know, how to get past whatever that hurdle is so that, you know, whether it's one unit or 20, they can, they can really scale.
[00:46:52] LANCE: So we've talked a lot about. Really the new or serial entrepreneur that now wants to venture into [00:47:00] a franchise business and the FDD and the franchise agreement. What about let's switch gears a little bit. What about the other part of your business, which is the independent business? That comes to you and wants to grow and scale through franchising. So you know, I know that's really exciting for you because there's a lot of wealth that is certainly made there as well. So what advice do you have for independent business owners out there that have something good and they're exhausted. They're so tired.
[00:47:30] AMANDA: Yeah, that is so hard. That's a hard place to be right where you're talking to somebody that's a great business person. They've got this great product or service and they're still doing it all themselves. Right. And they just, they want to figure out a way to grow this thing and not be the only person that's doing it. You know, they need to stop flipping the burgers and. You know, they got to get other people in there to help. So I will say one thing that I do as part of my business is I certainly work in franchising, but sometimes people come to me and they don't [00:48:00] want a franchise for whatever reason, they're interested in scaling their business in different ways. And so I consider my practice franchise and distribution. And so I do kind of strategize with clients about what the best model for them is. So franchising can be part of it, but it also be, you know, I dunno, distributing through. Grocery stores or partnering with people doing venturing. Absolutely. So you know, there's a lot of different ways of doing it. There's not only one way. And so we, we try to pride ourselves on being kind of solution people, you know, solution-based strategies for clients. And a lot of times that involves franchising as at least a piece of the puzzle, but it doesn't have to be the end, all be all. And you know, Some things. I, I, I bring this up a lot, but there are some businesses that, you know, really there's a key man problem, right? Like if they're only successful because of the charismatic, you know, guy behind the bar is that scalable through franchising is that, can [00:49:00] you replicate that concept? And so these are all questions that we have for people. And if the answer is no there's other options, there may be other options. Right. And so we just kind of, you know, we, they have to systemize, they have to be able to package it. What it is that they are selling and be able to replicate it. So we work with them to do that. And, and the FDD after you do as part of that process, for sure, because just preparing that document alone helps clients figure out what it is that they're doing, getting around their brand identity. And actually the firm in which I work has a, has a separate affiliate company that actually works with clients, both franchise and. On cementing their brand, right. They do a whole brand. I don't want to say overhaul because it's not necessarily changing the brand, but it's, it's teasing it out. Right. And helping clients really nail down what that brand is. That's really an exciting part of our platform at the firm. And we love working with those folks to kind of do that for our emerging clients.
[00:49:58] LANCE: I love it. So, any final [00:50:00] thoughts for today? Anything we didn't cover or any final tips you want to share?
[00:50:04] AMANDA: Geez. I don't know. I feel like we covered so much, but yeah, I mean, certainly I was just happy to be here and to talk with you. I feel like we, the time goes fast whenever we do. We have so much to talk about and in the industry, in which we love so much. Yes, please. You know, anyone that's listening, if you have other questions for me, or if I got one of the items wrong, I already think I might've messed up, eight a little bit.
[00:50:29] LANCE: It's not possible,
[00:50:31] AMANDA: but if I did, I'm admitting it, you know? And I would, you know, I would love to hear from anybody that's listening, please do let me know. If we can talk or if you think that it would be helpful to you to, to meet with me in some way, even if it's just so. Well, maybe networking, et cetera. That would be great.
[00:50:49] LANCE: We will make that connection for sure. So Amanda, thank you so much for being here and until next time, cause we'll definitely have a part two.
[00:50:57] AMANDA: We have to, there's so much to talk about. Thank you [00:51:00] so much. Thanks, bye.
[00:51:02] LANCE: Bye. Bye.
[00:51:05] Thank you very much for listening today, please like follow and subscribe so you don't miss anything here at Eye on franchising visit our website. Eye on franchising.com E Y E O N. franchising.com and complete our free assessments so we can assist with. Finding your perfect franchise this is Lance Graulich until next time.