If you are new to the world of franchising, you may be surprised to learn how rigid and inflexible the franchise “rules” can be. It seems inconsistent with a business format that is praised as an avenue for creativity, entrepreneurship and the potential for rapid cost effective expansion. A great example of this is the natural inclination of the buyer and seller of a business, even a franchise business, to want to negotiate the terms.
But if it’s a franchise, it is just not that simple. There are laws, there are rules and there are practices that have evolved as the franchise industry has matured. Especially when it comes to selling a franchise.
Entrepreneurs promoting their business and people hired to sell very naturally want to sell. A buyer normally will want to negotiate the terms of deal, but here’s why a franchisor should be reluctant to negotiate most terms:
1. The fundamental purpose of franchising is to expand through a network of businesses that are uniform in quality, service and owner operated, and every special deal undercuts uniformity in some way;
2. The franchise network or system must operate to quality standards set by the franchisor for both practical business reasons (think “my house my rules”) and for legal reasons (including to preserve trademark rights users must be held to a standard set by the owner ) and that means a consistent set of rules which may be undercut by changing terms from franchise to franchise;
3. Franchises are sold by means, in part, of a prospectus called a franchise disclosure document (the FDD) required by the FTC Franchise Rule. The point of an FDD is to tell prospective buyers what the deal is they are buying and to level the playing field. Everyone is supposed to be told what the rules are for being a part of the particular franchise system . The FTC Franchise Rule dictates fundamental disclosure requirements intended to ensure that prospective buyers are fully informed about important terms of the franchise. Negotiating creates an unknown, unpredictable element that is typically not disclosed and creates unequal treatment of buyers. And that may violate a state or federal franchise law or regulation.
Everyone wants a special deal, but what a nightmare to manage all those deals and maintain a uniform quality and consistent image and reputation. Are there exceptions to every rule? Sure…but it better be backed a reason good enough to tell at the next franchisee convention.