The franchise industry sometimes receives mixed reviews including the occasional bad press. However, a look at the top tier of the industry reveals franchises that are successful for both franchisors and franchisee investors.
Over the last 5 years, the top 25% franchises:
Healthy and successful franchise systems need to differentiate themselves from the bad apples.
Positive growth franchise systems establish additional funds as a higher percentage of the total Item 7. A low additional fund value and subsequent negative growth could be attributed to franchisee undercapitalization.
A larger percentage of positive growth franchise systems disclose a defined or structured territory within their franchise disclosure document. This can either be an exclusive or protected territory, or a defined territory such as a marketing radius.
Almost 80% of the positive growth franchise systems in our database provide an Item 19 disclosure compared to less than 60% of negative growth franchise systems. There are a variety of FPR formats that can be used by franchisors to meet this requirement.
We have completed a study on the changes in Ongoing Fees in the franchise industry using our data from 2013 – 2016 to publish the report.
A Franchise Disclosure Document (“FDD”) presents key components of the franchise program including the obligations of the franchisor and franchisees.
As franchise system development becomes more competitive franchise systems are employing a new strategy to grow their brand and increase franchise sales.
The composition of the franchise investment differs in key areas such as: franchise fees, royalty rates, territory protections and Item 19 disclosures.
Data has become essential to having a successful franchise development team. Those that maximize the power of data will sell more franchises.
When reviewing an FDD, we always keep our eyes out for any errors. The error that is the most troublesome for us is when we see Item 20 errors.