This post is Part 4 in an ongoing series introducing readers to the franchise disclosure document and some aspects of which franchisors should be aware.
Item 9: Franchisee’s Obligations
Item 9 is essentially a table listing a number of obligations that the franchisee will have in the operation of the franchise, along with its location within both the franchise agreement and the disclosure document. It will reference and make clear the duties that you are imposing on your franchisee both pre- and post- opening. Very straightforward.
Item 10: Financing
If you offer financing to your franchisees, then you will detail that financing here in tabular form – the interest rate, the amount of financing, etc. – for each item financed. Because few small franchisors offer such financing, this section is typically little more than a footnote.
Item 11: Franchisor’s Assistance, Advertising, Computer Systems, and Training
The former name of this section was “Franchisor’s Obligations,” which is descriptive of what this section encompasses. Item 11 is of particular importance from a franchisee’s perspective, because the paragraphs within this section detail the franchisor’s operating system that they will be paying for.
A well-informed franchisee will have an idea coming into the business of what he or she will need to succeed in the business. This section had better cover all those things. Furthermore, you should know the difference between something that you offer as the franchisor and something you are obligated to do as a franchisor. You may go above and beyond your obligations, but performing less than that which you obliged yourself is inviting failure, litigation, and just a bunch of headaches in your day-to-day.
Item 12: Territory
This section will detail the territory in which the franchisee may operate its franchise and whether or not the territory is exclusive. In this case, exclusivity means an absence of competition from other businesses operating under your trademark, whether franchised or company-owned.
Exclusivity is one of the areas typically of utmost importance to franchisees. If you will not grant an exclusive territory, you must include a conspicuous warning to the franchisee within this section, stating: “You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.”
Part 5 of our series of post seeking to answer the question, “what is a franchise disclosure document?” can be found here.