Why You Need to Upgrade Your Franchise Disclosure Documents Every Two Years

Most startup franchisors spend the $35,000 it takes to create the required disclosure documents so they can franchise. In fact, they believe once they do this, that they can pretty much keep going, and not have that expense again. However, as a former franchisor I can tell you that it makes sense to upgrade and revisit your franchise disclosure document every two years. Why is this you ask?

It’s simple, because there are so many lawsuits and the franchising industry is so litigious that the case law which comes down the pipeline must be considered in every new franchise agreement which is signed. Further, those franchise agreements as they come due and the franchise terms expire must also be renewed to whatever the current version is. It doesn’t make much sense to allow individual franchisees to negotiate their franchise contracts, except in very rare occasions.

The reason being, it gets much too complicated as the franchise system expands. Interestingly enough, I am speaking from experience because I did run a franchise company prior to retirement. It seemed that we were always making deals with new franchisees in various regions to get the ball rolling. In fact, not a single one of our franchise agreements was exactly the same. As we got bigger and bigger it was harder and harder to keep track of it all.

Yes, it’s amazing what a franchisor founder can do and keep track of in his head one time, but that practice of making individual arrangements, deals, and agreements had to stop. Unfortunately in doing so, I was unable to use my entrepreneurial talents and deal-making skills to grow the company as fast as I’d wanted too. But alas, there was too much exposure to liability, and lawsuits, and eventually my brilliant entrepreneurial company started to operate more like a bureaucracy. It was horrible.

Oh sure, it made money, and it was a great business with a great business model, but it wasn’t fun anymore. Soon, I was spending more time with accountants, and lawyers than I was out in the field with my franchisees, folks that I felt very close to because for over 10 years I ran a business, and developed my prototype business model from my own efforts. I felt more like a franchisee than a franchisor. Nevertheless, franchising companies must upgrade their franchise disclosure document every two years.

They need to be on a first name basis with their franchise attorneys, even if they hate lawyers, and most entrepreneurial franchise founders do by the way. Perhaps because they don’t like paying people hard earned money, and cash flow they need to expand their company when the lawyers aren’t producing anything. You can understand that right? Still, it doesn’t matter, those franchise disclosure documents need to be upgraded, and if you don’t you’ll be sorry. Trust me.