The Franchise Manual Podcast – Episode #19 – Managing Your Franchise Agreements with the End in Mind
Tom Spadea discusses the benefits of properly managing the FDD and the Franchise Agreement, from the beginning, making sure to keep the end in mind. The “end” he speaks of is a possible acquisition by an investment company. What will they expect to see when they look at your franchisees contracts in your files?
Tom Spadea Intro – 00:00:40 Segment 1 – 00:03:22
Get to know Tom Spadea Segment 2 – 00:24:40
Topic Segment – Managing Your Franchise Agreements with the End in Mind Bonus Segment – 00:57:15
Managing Franchisee Growth Segment 3 – 01:02:50
Topics discussed in this episode:
Where do most franchisors get it wrong? Many franchisors and franchise attorneys focus mostly on the substantive issues of the and forget about procedural issues related to the process – managing latent defects
Item 23 receipt page not being properly executed and filed
Guarantees not properly executed
Individual versus LLC signing FA/lease
You can have the best FDD and franchise agreement in the world, but if you don’t manage the process properly, it can cost you a lot of money in the short term with an unenforceable contract, and in the long run, upon exit.
It’s important to understand who the real audience of the Franchise Agreement is. It is the franchisee, but it is also a prospective private equity investment firm who may want to purchase your system in the future.
What is the process? Step 1: Make sure that the franchise agreement is up-to-date Step 2: Geographical Analysis – Ensure that the franchisor is registered in every registration state where the concept will be offered. That includes where the prospect is currently located as well as where they want to open a location. Both states must be registered if required by that state. Deliver the correct FDD for the state. Step 3: Ensure that 14 days pass between delivery and signing of the Franchise Agreement, not including delivery day and signing day Step 4: Spend the time to ensure that names are all spelled correctly, along with middle initials. Check the address, LLC name etc. Step 5: Prepare a custom franchise agreement based on the specific agreements made between franchisor and franchisee – do not use the sample franchise agreement that is included in the FDD. Deliver the document to all required recipients and ensure proper signatures Step 6: Ensure that the lease includes all of the required language as per the franchise agreement
There are many different software packages that can help you with each aspect of the transaction, but Spadea Law has the platform that hits every element. Compliance Map helps franchisors ensure that they are only offering the franchise in the proper states. The link to the Compliance Map software demonstration is below: