So, you have your Franchise Disclosure Documents (“FDD”) and other related agreements in order and ready to start selling your newly created franchise system. You may consider advertising through various channels with catchy promises of success and profits and slogans such as “Join the Franchise Frenzy: Your Ticket to Business Success Awaits!” or “Follow our Franchise System and we guarantee you will be profitable within your first year!” Both are catchy and undoubtedly great hooks, but this leads to the question: What are the possible legal pitfalls with franchise advertising?

Franchise Advertising Best Practices

When drafting an advertisement for a franchise system, it is crucial to avoid making any financial performance representations unless the financial performance representations are also included in Item 19 of the FDD. This means that advertisements should not include any statements about the actual or potential financial performance of the franchise, such as sales figures, profit margins, or earnings potential, unless these are expressly disclosed within Item 19 of FDD, without alteration. Financial performance statements can be explicit or implicit. It is important to ensure that none of the statements in your advertisement are inadvertently implicit financial performance statements.

If financial performance representations are made within your advertisement and they align with your Item 19 of the FDD, then we would recommend also disclosing the following:

  • The number and percentage of outlets from which data is used that actually attained or achieved the data provided;
  • The time period when performance results were achieved as disclosed; and
  • A clear and conspicuous statement that a new franchisee’s results may differ from the represented data.

Advertisements should also not make any promises or guarantees. It is important that all statements made in advertisements do not conflict with any statement made in the FDD and that any statement in the advertisement is also disclosed in the FDD.

Additionally, we would recommend the following general guidelines when vetting statements made in your franchise advertisements:

  • If an industry statistic or other research is being used, then citations should be included from a credible source;
  • Be careful not to inadvertently disclose any proprietary or confidential information, such as customer data or sales trends; and
  • If franchisee testimonials are included in the advertisement, be sure to comply with the Federal guidelines concerning the use of endorsements and testimonials.

In general, an advertisement for a franchise should focus on the benefits and opportunities of the franchise, ensure all statements are in line with the FDD, and, if any authorized data is included, ensure that sources and supporting data are well supported.

Advertisement Pre-Filing Requirements

Certain franchise registration states also require that advertisements be pre-filed with the state’s examiners before being used:

Which Registration States require advertising be pre filed?

Once the advertisement has been filed with the appropriate registration state, and you do not hear from the state by the end of the review period, you can then begin to use the advertisement. If the examiner issues a comment, then the advertisement will need to be amended accordingly.

Not all advertisements are required to be pre-filed before publication, as certain exemptions may apply. Furthermore, many states have additional advertising requirements. Rhode Island, for example, requires that all advertising records used to sell a franchise be kept for a minimum of five years. Remember, the requirement to pre-file your advertisement and any exemptions to the pre-file requirement is only for those states listed above that require the pre-filing of your advertisements.

It is important to remember that before you make any advertisement regarding a franchise in any state, you must: (1) have a finalized FDD that complies with the Federal Trade Commission’s Franchise Rule, and (2) be registered with or file your FDD with the applicable registration/notice filing states listed below:

Federal FDD map Key

Advertisement Disclaimers

Lastly, you should include a disclaimer in the advertisement. The disclaimer should be tailored to the content that you are advertising. Certain registration states may also require that specific information be included in your disclaimer.

The article is for general information purposes only and should not be considered or construed as legal advice or opinion. We recommend that advertisement materials be reviewed by a franchise attorney. If you have questions pertaining to advertisement filings, exemptions, or disclaimers, please contact Elliot Boerman or one of our franchise attorneys at Manning Fulton or visit our website at www.manningfulton.com/services/franchise-hospitality to review our Franchising services.

The Federal Trade Commission (“FTC”) has taken a renewed interest in the Franchise Rule and the relationships between franchisors and franchisees. In March 2023, the FTC requested comments from franchisors and franchisees. On July 12, 2024, the FTC took three distinct actions to showcase some of what it learned from those comments and its current priorities. These actions also perhaps signal where it will focus its rulemaking efforts in the future.

1. New FTC Policy Regarding Contract Provisions that Limit Franchisee Communications with Government Agencies

Franchisors may or may not have these kinds of clauses in their franchise agreements, termination agreements, transfer agreements, and settlement agreements. Even if these clauses are in those agreements, franchisors may not have intended to chill reporting. Franchisors may want to consider adding language in new agreements that clarifies that the provisions do not prevent the franchisees from communicating in government investigations.  However, this should be done cautiously and carefully. There may be situations where confidentiality is the essence of the agreement – such as in a settlement agreement. Franchisors should discuss this new FTC policy with their attorneys before making any changes to these clauses in their agreements.

The FTC announced a new policy regarding contract provisions that the FTC asserts can be used to prevent franchisees from reporting illegal activity by franchisors to government agencies. Submitted comments from franchisees sparked concerns that some franchisors are chilling communications between franchisees and government agencies through contract terms or other tactics. In response, the FTC issued a policy that declares (a) confidentiality clauses, (b) goodwill clauses (provisions that prohibit franchisees from taking actions that damage the franchisor’s goodwill), (c) non-disparagement clauses (provisions that prohibit franchisees from making negative statements about the franchisor) are void and unenforceable to the extent they impair or prohibit free communication about potential law violations with an administrative agency.

2. New FTC Staff Guidance on Undisclosed Fees in Franchising

The FTC issued a staff opinion, which is not a binding interpretation of law, that declares it is unlawful for franchisors to impose fees on franchisees if those fees were not disclosed in the Franchise Disclosure Document. The staff guidance is aligned with the comments and actions of state franchise regulators, especially in California and Washington.

Imposing new fees on franchisees without a clear provision in the franchise agreement has always been a questionable practice. However, one motivation for doing so that is in our view understandable is to adapt the system of operations to keep up with market trends and opportunities. These may emerge sooner than the end of a 5-to-10-year franchise term, whereupon the franchisor can add a new fee in the renewal franchise agreement to address the development. For example, new technologies have been introduced rapidly. Implementing a Technology Fee that was not in the franchise agreement may be tempting to justify if its use is to support technologies that improve the franchisee and customer experience.

Nonetheless, even if the franchisor can demonstrate the benefit of a new fee that was not previously disclosed in the FDD, the FTC guidance suggests it cannot be done. Franchisors still have options to avoid situations that hurt the brand, the franchisee, and the franchisor. First, some fee provisions can be drafted to increase the fee upon inflation or introduction of new goods and services. Second, if your brand does not yet have a Technology Fee, strongly consider adding in the franchise agreement the right to add one in the future (perhaps subject to a maximum amount). Third, consider a shorter term of the agreement to allow you to make updates quicker. Fourth, invest in strong franchisee relationships. When there is not an agreement provision allowing for a fee that may legitimately be needed in the system, having the trust of your franchisees allows you to ask them to voluntarily pay it if you can demonstrate the value it will be to their business.

3. New Franchise Guidance Website

The FTC released a new website titled “Franchise Guidance,” which can be found here: https://www.ftc.gov/news-events/features/franchise-guidance. The website represents a focus on educating prospective franchisees and seeking input from current franchisees.  Its content includes the policy statement and staff guidance mentioned above. There is also a new spotlight page citing the most common issues reported to the FTC in its March 2023 requests for information. (Note that these 12 key issues are likely the ones that will continue to be the focus of the FTC’s future rulemaking).

Some of the older materials available on the website are a blog series explaining Franchise Fundamentals and a Consumer’s Guide to Buying a Franchise. Each of these materials focuses on the risks associated with franchising – both those inherent in the model and those stemming from irresponsible or fraudulent businesses.

We will likely see this website develop into a hub of pro-franchisee content and the place where new FTC guidance and policies are announced. Franchisors should be aware of the issues the FTC is highlighting so they can be prepared to address questions from prospective franchisees about the risks and benefits of franchising.

Manning Fulton attorneys are ready to help you navigate this new guidance as you address franchisee relationships and disclosure obligations.

In today’s competitive marketplace, a strong trademark is essential for any business. It acts as your brand identity, fostering consumer recognition and trust. But with so many brands vying for attention and considering the time and cost associated with trademark registration, choosing the right trademark that sticks in the minds of your customers or clients and is likely to be approved for registration can be a challenge.

The United States Patent and Trademark Office (the “USPTO”) is on a substantial backlog, typically taking 6 to 9 months before assigning an application to an examiner for review. If the examining attorney does not find any issues, they will approve the application and publish it in the Official Gazette for a 30-day opposition period during which time members of the public will have the opportunity to oppose the mark. If no one opposes the registration or requests an extension of time to do so, the USPTO will issue your registration within 90 days of the close of the publication period. As such, the trademark application process typically takes over a year under the best circumstances, making it extremely important to consider and weigh the viability of your application prior to filing to avoid the time and cost associated with refiling or responding to USPTO office actions.

In order to properly consider the viability of your application, it is important to understand the concept of “trademark distinctiveness.” Trademark distinctiveness can best be described as a spectrum of how creative, unique and memorable your chosen trademark is, which will directly impact how easy it is to register and enforce. On this spectrum, trademarks can be categorized into the five levels of distinctiveness which are described below from weakest to strongest.

The Spectrum of Trademark Strength

  • Generic Marks (Unprotectable): These marks directly reference the product or service offered. Imagine trying to trademark “APPLE” for apples – if a registration were granted for this mark, legitimate competition from other sellers of apples wishing to accurately describe their product would be hindered. For that reason, the USPTO will reject any applications for generic marks.
  • Descriptive Marks (Weak): Descriptive marks describe a characteristic or function of the product or service. “The Cupcake Shoppe,” for example, describes a cupcake shop. While it might be the only cupcake shop in the area operating under that name or using that less common spelling of “shop,” registering such marks tends to be difficult, and their protection is limited. To gain protection and registrability, the owner of a descriptive mark needs to prove that the mark has acquired distinctiveness meaning consumers have come to associate it with their specific brand, goods, or services. Acceptable evidence of acquired distinctiveness includes i) continued use in commerce for five or more years, ii) prior registration of a similar mark, or iii) any actual evidence that consumers have come to associate the mark with your brand, goods, or services (typically, this evidence would include any materials showing the success of extensive advertising of the mark or showing notoriety amongst consumers). Descriptive marks are more difficult to register, but not impossible.
  • Suggestive Marks (Stronger): Suggestive marks take things a step further. They hint at the product or service without explicitly describing it. Think “Chick-fil-A”. The name suggests a service related to chicken, but it requires some imagination from the consumer to make the connection. The USPTO is more likely to approve applications for suggestive marks, however, the line between descriptive and suggestive is not always clear, and the USPTO examiner reviewing your application may take a different view than you or your attorney. For that reason, it is important to discuss your proposed mark with an experienced trademark attorney before submitting your application.
  • Arbitrary Marks (Strong): This second-best category includes existing words or symbols that have no inherent connection to the product or service. Think of how “APPLE” was used for computers. The word itself doesn’t tell you anything about the product, but it’s a real word that can be easily remembered. Arbitrary marks are readily registrable and enjoy broad protection due to their inherent distinctiveness.
  • Fanciful Marks (Strongest): Lastly, the holy grail of trademarks, fanciful marks are invented words or symbols with no meaning outside of the brand. “Google” is a perfect example – it has no meaning in everyday language, but it’s become synonymous with search engines. Fanciful marks are the easiest to register and receive the broadest protection because they are inherently distinctive.

Choosing Your Trademark Wisely

Now that you understand distinctiveness, consider these key takeaways:

  • Aim for a trademark that falls on the stronger end of the spectrum (suggestive, arbitrary, or fanciful). If that is not possible, discuss your mark with your attorney to determine the options that may still be available.
  • Remember, there are other factors to consider beyond distinctiveness, such as trademark availability and whether the mark resonates with your target audience, but it is, nevertheless, a crucial consideration when approaching the any trademark application.

Conclusion

A strong trademark is a valuable asset for any business. By understanding the spectrum of trademark distinctiveness, you can make informed decisions when choosing a mark that will effectively represent your brand and offer the legal protection you need. Remember, consulting with a trademark attorney can provide valuable guidance throughout the selection and registration process. If you are looking to register a trademark or need legal assistance with a trademark, please contact John Kellam or one of our trademark attorneys at Manning Fulton or visit our website at www.manningfulton.com/services/intellectual-property/ to review our trademark and intellectual property services.

Earlier this year, the Federal Trade Commission (“FTC”) released a set of revisions to its Guides Concerning Use of Endorsements and Testimonials in Advertising (“Endorsement Guides”) which instruct businesses on how to navigate the FTC Act and how to avoid engaging in unfair or deceptive trade practices.  These revisions were intended to modernize the Endorsement Guides to address new advertising channels such as social media, online influencers and artificial intelligence and were released alongside an update to the FTC’s Frequently Asked Questions webpage (FTC’s Endorsement Guides: What People Are Asking) and a proposed Rule on the Use of Consumer Reviews and Testimonials.

What’s Changed?

Of the numerous changes made in the revised Endorsement Guides, the FTC called out six as meriting special attention:

  1. The introduction of a new principle regarding not procuring, suppressing, organizing, upvoting, downvoting, or editing consumer reviews in ways that likely distort what consumers really think of a product.
  2. Clarification incentivized reviews, reviews by employees, and fake negative reviews by competitors.
  3. Adding a definition of “clear and conspicuous” and warning that a platform’s built-in disclosure tool might not be adequate.
  4. Updating the definition of “endorsements” to clarify that it can include fake reviews, virtual influencers, and social media tags.
  5. Providing a clearer explanation of the potential liability that advertisers, endorsers, and intermediaries face for violating the law.
  6. Emphasizing special concerns with child-directed advertising.

What does this mean for you?

If you are displaying customer reviews or exerting any control over third-party hosted reviews, you should make efforts to ensure that your presentation of these reviews accurately captures and that your actions in no way distort the full scope of customer reported experiences. In this vein, you should avoid pruning or suppressing negative reviews, creating fake positive reviews, or artificially inflating online engagement by any means such as view, follow or subscriber purchasing.

To the extent your business utilizes endorsements or paid or incentivized reviews, ensure that the nature of the endorsement or incentive is clearly and conspicuously disclosed. The revised Endorsement Guides define “clear and conspicuous” as difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” Similarly, take steps to ensure that your endorsers make all necessary disclosures and otherwise comply with the FTC guides, and, to the extent you have a contractual relationship, require they do so in their agreement.

While this post has touched on what the FTC called out as most important among the revisions to the Endorsement Guides and a few recommended compliance responses, this summary is far from exhaustive. That being the case, we recommend consulting with your marketing team and your attorney to discuss any questions you might have and to ensure compliance with the changing landscape of online marketing. Please contact John Kellam or one of our attorneys at Manning Fulton & Skinner, to discuss in further detail.

In the trademark and copyright law world, few disputes have garnered the attention of both the legal and culinary world quite like the “Taco Tuesday” debate. The controversy revolved around the rights to a popular phrase that has been simmering for years, pitting businesses against each other and igniting a discussion around the usage of common expressions. “Taco Tuesday” is a phrase that’s widely used across the United States to promote restaurant deals for tacos sold on a Tuesday. While the term might seem commonplace, that is the focus of the legal dispute.

In the late 1980’s, Taco John’s, a prominent fast-food chain based out of Cheyenne, Wyoming, successfully registered the trademark for “Taco Tuesday.” They sought to claim exclusive rights over this catchy phrase in 49 out of the 50 states, excluding New Jersey where another entity held a prior claim. Since then, Taco John’s has fiercely defended its trademark, even going as far as sending cease-and-desist letters to other businesses using the term to promote their own Tuesday taco specials.

The crux of this debate lies in the question of whether a commonly used phrase like “Taco Tuesday” can be owned by an induvial entity, thereby restricting its use in commercial settings. Critics of Taco John’s argued that the term had become too generic, used widely and indiscriminately, and thus should be free for everyone to use – In other words, they argued “genericide” of the trademark.

On May 16, 2023, Taco Bell filed a Petition for Cancellation with the U.S. Patent and Trademark Office to cancel the trademark, arguing that the phrase “Taco Tuesday” should be canceled under the legal claim of genericness. The basis for any cancelation of a trademark falls into two categories: (1) claims that can be raised within the first five years of a trademark’s registration; and (2) claims that can be raised at any time. During the first five years after a trademark has been registered, cancellation commonly occurs through a variety of claims such as the likelihood of confusion or dilution of a prior registered trademark. After a trademark has been registered for at least five years, it becomes incontestable precluding cancellation on the grounds of descriptiveness. Thereafter, many of these claims are no longer available to raise, but certain claims remain – where a petitioner alleges claims of abandonment, fraud, misrepresentation of sources, or notably, genericness.

Genericness or genericide refers to the process whereby a trademarked term becomes generic through use by the common individual and becomes so common that it loses its protected status. When a term is generic, it cannot be trademarked. This can be expensive and damaging to companies. Controlling how society uses the term is challenging and can become more expensive as it becomes more common in the everyday vernacular.

If the “Taco Tuesday” trademark lost protection because of its genericness, it would not be the first or last time that a trademark has lost protection through becoming generic. Escalator, cola, and aspirin were once trademarked terms that fell victim to genericide. Xerox is a frequently used example of a trademark that was threatened under the claim of genericness. As a result, the company advertised and encouraged consumers to use the term “photocopying” rather than “Xeroxing” to stop misuse of its mark.  Ultimately, these efforts were successful in pivoting common usage and defending against genericness.

Companies looking to protect their trademarks from a potential claim of genericness can take certain measures to reduce any potential risks. Such measures may include adding a descriptive term beside the product to avoid the brand name becoming generic, refraining from using the trademark in generic ways (such as in the form of a verb), using marketing campaigns to change the way consumers refer to their products, and most importantly, consistently enforcing trademark rights through legal guidance when there is common infringement of the trademark.

Ultimately, and significantly on a Tuesday, Taco John’s decided to abandon the “Taco Tuesday” trademark, saying it would “share” the catch phrase, and that instead of defending the trademark against a claim of genericide, would be donating money to charity. The “Taco Tuesday” dispute and its resolution demonstrates the dynamic intersection between language, culture, and trademark law.

While that may be a wrap on the “Taco Tuesday” trademark dispute, if you are concerned about protecting your trademark from genericness, or alternatively, are accused of infringing a trademark whose mark is ubiquitously used to refer to a type of product or service, please contact Elliot Boerman or one of our trademark attorneys at Manning Fulton & Skinner, to discuss in further detail.

At some point in most franchise sales conversations a prospective franchisee will ask “So, what’s the size of my territory?” Some franchisors grant franchisees a geographic area, or territory, in which the franchisor agrees not to conduct certain competitive activity, like placing another unit. For some types of businesses, the territory is the only area where the franchisee can conduct marketing or serve customers.

If a franchisor decides to grant franchisees a territory, it will disclose critical details about territory protections and size in Item 12 of its Franchise Disclosure Document (“FDD”).

Below we have listed five questions that every franchisor should answer when considering whether to offer a territory to franchisees or when considering how to modify its territory structure.

  1. Should franchisees receive a territory at all?

The decision to award a territory is strongly dependent on the nature of the franchised business. Many franchisees do not receive any territory protections and face competition from the franchisor, its affiliates, or other franchisees from any location or method. These franchisees tend to be in industries that are convenience-based or relationship-based. Some of these franchises are operated in areas with high-density populations or areas with a captive audience like a university campus or sports stadium. In these situations, it is impractical to define a territory because the location of the outlet is driven by the convenience to the customer. If a territory is not awarded, the franchisee is dependent on the franchisor’s judgment in determining how close is too close for another outlet.

In contrast, brands that provide goods and services at the customer’s locations typically do award territories. Doing so incentivizes franchisees to fully develop their markets and helps prevent conflict between outlets claiming ownership of a customer.

The important thing to remember is that a franchisee is not entitled to a protected territory and the franchisor should create a territory structure that works best for its system.

  1. Will the territory be exclusive?

In the FDD, a franchisor will disclose if the territory is “exclusive.” As defined by the FTC, a territory is exclusive if “the franchisor promises not to establish either a company-owned or franchised outlet selling the same or similar goods or services under the same or similar trademarks” in the territory. This type of protection is one that the franchisee is likely most interested in.

Even if the franchisor agrees that no other company or franchised unit will be established in the territory, the franchisor should still reserve other competitive rights. What rights are specifically reserved will vary from system to system. They will also depend on the nature of the franchisor’s other business interests.

Commonly, franchisors reserve the right to use other channels of distribution to sell their goods and services within the territory. For example, a restaurant with a signature sauce may reserve the right to sell the sauce in grocery stores in the territory. This action technically competes with the franchisee but is not establishing another unit within the territory. Another very important channel of distribution for many businesses e-commerce and most franchisors reserve the right to make these sales to customers in the franchisee’s territory.

  1. How will the size of the territory be determined?

An ideal franchisee territory is one that is big enough to allow the franchisee to be financially successful and small enough that the franchisee can fully penetrate the market. A franchisor should examine data to determine how many customers are necessary to be successful and where those customers are located. Using this experience, the franchisor then defines the territory, which can refer to (1) population size, (2) distance, (3) number of target customers in the territory, or (4) well-defined regions like city boundaries of zip codes, among other options.

Examples of these definitions are below:

  • A population of no less than 75,000 people, as calculated using US Census data.
  • A three-mile radius from the location of the franchised business.
  • Containing no less than 20,000 qualified households.
  • Including the following six zip codes.
  1. Will there be circumstances when the franchisor can modify the territory?

Franchise agreements often have substantial term lengths and a lot can change in five, ten, or fifteen years, especially in a region with significant new development. Some franchisors reserve the right to re-evaluate the size of the territory during the term to account for anticipated or unanticipated changes. These adjustments to the territory are not typically unlimited and usually adjust the territory to the size that was originally intended. For example, if a suburban area has a significant population increase, the territory would be adjusted to an area containing the original population size.

Additionally, franchisors may reserve the right to change the size of the territory if a franchisee is not in compliance with its obligations under the franchise agreement. This remedy allows the franchisor to take strong action to encourage compliance, short of termination. One obligation that is often the trigger for changing territory rights is the franchisee’s failure to achieve a certain performance level like a minimum sales obligation.

  1. What are the restrictions on franchisees operating outside of the territory?

The FTC requires the franchisor to disclose in Item 12 the restrictions on what a franchisee can do outside of its territory. Consider if the franchisee will be able to:

  • Conduct advertising and marketing that occurs or targets customers outside of the territory,
  • Accept orders from customers who live outside of the territory,
  • If goods and services are normally provided only at the location, provide goods and services at off-site events, whether through the franchisee’s employees or through a third party (like a delivery service),
  • Provide services to an out-of-territory customer if the area is not currently under a franchise agreement with another franchisee, or
  • Use another channel of distribution to make sales outside of the territory.

Establishing these rules for your franchisees helps to focus their sales and marketing efforts and can reduce friction between franchisees as they compete for customers.

Discussing these questions with qualified franchise counsel will help you to structure franchisee territories in a way that balances the rights of the franchisor with the interests of the franchisee. If you are looking to implement franchise territories or have questions about what approach works best for you, reach out to Manning Fulton to assist you with determining the right strategy and drafting your Franchise Disclosure Document (“FDD”).

On April 26, 2025, the U.S. Small Business Administration (SBA) announced that it will reinstate the SBA Franchise Directory, effective June 1, 2025. This decision marks a significant policy shift following the discontinuation of the directory in 2023 established in 2018. Urgent action must be undertaken if franchisors want their franchisees to qualify for SBA financing.  Without this action, then franchise development could be delayed.

Background

The SBA designed the Directory to streamline the loan process—not only for lenders, but also for franchisors and franchisees seeking SBA-backed financing. Although inclusion does not imply SBA endorsement, it indicates that the franchise system’s agreements and disclosures have undergone review and meet the SBA’s eligibility criteria.  The SBA’s announcement responds to feedback from lenders and franchisors who experienced increased documentation burdens and inconsistent determinations after the directory’s removal. Without a centralized list, many brands and their franchisees faced delays and uncertainty in the loan process.

How the Franchise Directory Will Work

The reinstated Directory will enhance efficiency and consistency in SBA loan eligibility reviews by enabling lenders to quickly confirm whether a franchise brand meets SBA affiliation standards. The SBA will maintain the Directory on its website. It will include the SBA’s determination of whether the brand meets the FTC definition, the SBA Identifier Code (if applicable), and any additional considerations SBA lenders must evaluate regarding the brand.

Under the reinstated policy, if an applicant’s brand meets the Federal Trade Commission (FTC) definition of a “franchise” under 16 CFR § 436, then the brand must appear on the Directory for its franchisees to obtain SBA financing.  Franchisors who were on the old directory will be fast-tracked for approval if they timely act.

Key Procedures and Requirements:

  1. Free listing: Listing on the Directory is free. Franchisors may begin submitting application materials for review on June 1, 2025.
  2. Franchisor Certification: Once the SBA determines eligibility, the franchisor must sign and return a Franchisor Certification to the SBA.
  3. Certification replaces Addendum: The SBA Addendum (Form 2462 or a negotiated addendum) is no longer required. Franchisors must instead submit the signed Certification acknowledging the conditions for Directory listing.
  4. Maintain listing for previously listed brands: Franchisors listed on the Directory as of May 2023 must enroll by July 31, 2025, to remain listed.  If they fail to timely do so, they should expect delays in franchise loans being processed, which could adversely impact franchise development.

For franchisors, the reinstated Directory offers an opportunity to reduce financing friction for prospective franchisees. Brands that rely on SBA-backed lending as a core growth strategy should consider submitting materials early to ensure timely inclusion.

Manning Fulton’s franchise team is available to assist franchisors in renewing their enrollment on the Franchise Directory or becoming registered.  Please contact Ritchie Taylor or Elliot Boerman at Manning Fulton for more details.

The franchisor has just informed you that the franchise disclosure document (“FDD”) is finally ready to go, and you are thrilled to begin talking to prospective franchisees about the best new concept you’ve seen. You are of course aware of the requirement to register in certain states https://www.franchisefeed.net/2024/07/franchise-state-compliance/ with franchise registration and disclosure laws, but as you start talking with candidates, it’s not always clear when these state laws apply. What are the things you need to learn about the prospective franchisee in order to comply with these laws?

The jurisdictional applications of a state’s franchise laws are specific to that state. There’s not just one rule that applies everywhere. You and your attorney should always review these laws on a case by case basis to ensure compliance.

Nevertheless, below are some essentials to consider before you engage in any sales conversations or other forms of offering or selling the franchise opportunity.

  1. Where is the franchisor targeting its franchise marketing and advertising?
  2. Where does each owner of the prospective franchisee personally live?
  3. Where does the prospective franchisee want to open the business?
  4. Will the protected or operational territory of the business cover multiple states?
  5. Where is the franchisor’s headquarters?
  6. Where are you engaging in conversations and sending materials from?
  7. Where are the owners of the prospective franchisee at the time that you disclose the FDD to them or have other sales conversations?
  8. If applicable, where is the in-person meeting occurring?

These inquiries are relevant because the state laws will apply to all or a combination of each of these locations: where a franchisee is domiciled (residing), where the franchised business is to be located, where the offer is made, and where the offer is accepted.  Importantly, more than one state law can apply to any deal if the facts are right.

In the fact pattern below, arguably the franchise laws of Wisconsin, Minnesota, Illinois, Maryland, Indiana, and Washington would apply to the marketing and sale of the franchise. Accordingly, before having any sales conversations or engaging in any other franchise sales efforts, you would need to make sure the FDD has been properly registered with each state.

The new franchisor is located in Wisconsin. The franchisor targets its franchise recruitment digital advertisements to people in neighboring states Minnesota, Iowa, and Illinois.

Two brothers, Bob Roberts and Robby Roberts, want to go into business together. Bob lives in Iowa where there are no franchise registration laws. Bob is the recipient of the franchise marketing for the new concept and gets excited. Bob tells his brother, Robby, about the opportunity and together they schedule a call with you. Robby will not be operating the business but will contribute a significant amount of the upfront capital as an owner. Robby lives in Maryland. Because of the distance between Maryland and Iowa, the brothers tell you they want to split some of the difference and open in Indiana.

After two calls with you, Bob and Robby go cold. But in a few months they let you know they are ready to receive the FDD. You send it to them by email. On the call to review the FDD with the brothers, you learn that Robby has relocated to Washington, where he requested and received the FDD.

After a bit more validation by both the franchisor and the prospective franchisees, the Roberts brothers are ready to sign a franchise agreement. Bob signs his copy in Iowa and Robby signs his copy in Washington. They begin development of their new business in Indiana.

Franchisor sales staff, outsourced franchise sales organizations, and franchise broker organizations should develop practices that quickly and systematically determine all of the relevant locations triggered by a specific prospective franchisee or ownership group. As this hypothetical indicates, it also helps to verify that those locations have not changed during the course of the deal.

When in doubt, or for more pro tips, talk to franchise attorneys at Manning Fulton & Skinner.

Gift cards and loyalty programs can be effective tools in generating sales, developing brand awareness, generating actionable customer data, and driving repeat business. When these programs are implemented on a single-store basis they fairly straightforward to administer. When rolled out through a network of independently owned franchised business, these programs require more attention and planning to be effective and compliant. As you look to implement a gift card or loyalty program with your franchise system, keep in mind the factors below.

1. Is the program permitted by the Franchise Agreement and documented in the Franchise Disclosure Document?

      A complex system like a gift card or loyalty program system is best implemented if the franchisor has the express rights to do so under the franchise agreement and the possibility of such a program has been disclosed in the FDD. Most franchise agreements written within the last 5-10 years probably have this reserved right. However, if the franchise agreement for some or all of your franchisees does not grant the franchisor this express right, there is an argument that the franchisor’s requirements for franchisees to participate in advertising and marketing programs may extend to gift cards and/or loyalty programs. Ideally the franchise agreement should also provide that franchisees cannot implement their own versions of these programs.

      Disclosures in the FDD about gift card and loyalty programs will vary by the specifics of the program, but in general:

      • Any fees charged to franchisees and paid to the franchisor or its affiliate for the programs need to be disclosed in Item 6. If a fee to participate in the gift card or loyalty program has not been disclosed in advance, then it cannot be charged to franchisees without their consent.
      • The supply relationships for the technology, vendors, and materials needed to operate the program may need to be disclosed in Item 8.
      • The technology requirements to implement the system need to be disclosed in Item 11. Item 11 also contains disclosures about the franchisor’s role in advertising and the franchisee’s advertising obligations and the program may need to be discussed as part of these contexts.

      2. Create and maintain customer-facing and franchisee-facing policies.

      The terms and conditions for customers to participate in the gift card and/or loyalty program should be clear and comprehensive. When customers can readily understand the benefits and limits of the programs, there are less issues for franchisees and the franchisor to manage.  Chances are these terms and conditions will become more detailed with time as you gain experience with specific issues.

      The customer terms for gift card programs might include rules about expiration dates, where the gift card can be redeemed, how returns and refunds will be treated for items purchased with the gift card, any applicable usage, replacement, or dormancy fees, and any items for which the gift card cannot be spent.

      The customer terms for loyalty programs are similar. A franchisor should think through how the points will be generated and redeemed, limits on purchases that generate points, items for which the points cannot be redeemed, expiration of the points and benefits, how returns and refunds will be treated for items generating points or for which points were redeemed, and when an account become inactive. The franchisor should reserve the right to change these policies at any time, for any reason. In practice, customers should be given adequate notice of any significant change.

      Uniform application of these policies promotes the best outcomes and franchisees should be educated on how to operate the program. Some franchisors may want to grant franchisees the right to have limited discretion in areas such as customizing exclusions, running special promotions to issue additional loyalty program points for local customers, and responding to customer concerns about the program.

      The franchisee-facing Brand Standards Manual should discuss the terms for franchisees to participate in the program, limits on their discretion, and the franchisor’s approach to the topics of data privacy, redemptions, and compliance.

      3. Thinking through data privacy compliance.

        Franchisors typically assert ownership of customer information in franchise agreements. They do so to more effectively control use of data after franchisees have exited the system and to ensure their rights to use data without restrictions. The responsibilities associated with the right of ownership often include the duty of the franchisor to comply with data privacy laws, even if the franchisee first collected the data.

        One of the advantages a loyalty program offers a franchisor is the opportunity to gather customer information. That information is then used to communicate with the customer, market to them in a tailored way, and analyze purchasing trends. Most programs we’ve seen require at least a name and an email address or telephone number to register. Some programs may require, or offer the customer an opportunity provide, additional information (birthday, address, purchasing preferences, payment information, etc.).

        Gift card purchases traditionally have not required the input of any personal information. However, new e-gift card programs may require the purchaser’s information and the recipient’s information, much like the other details needed when purchasing products online.

        In collecting customer’s personally identifiable information, brands need to be aware of data privacy laws that, among other things, can restrict the kinds of information collected, stored, used, or shared and that require advanced disclosures to customers.  For example, California has a robust data privacy regime requires a company to disclose financial incentives offered to customers in exchange for their information. Some types of loyalty programs may require these additional disclosures.  

        4. Establish and administer redemption policies.

        Gift cards and loyalty programs pose some accounting challenges both at the individual unit level and across the franchise system.

        Under general accounting principles, revenue from the sale of a gift card cannot be recognized until the gift card is redeemed. Most franchisors apply that principle and consequently charge the royalty only on the amounts the franchisee receives from gift card redemptions.

        If a gift card is only redeemable at the place where it is purchased, that accounting principle is easy enough to administer. However, customers of national or regional brands are likely to expect that they will be able to redeem their gift cards at any location. Applying the sale vs. redemption accounting across multiple locations gets complicated quickly.  The solution commonly looks like this: Customer purchases a $50 gift card at Location A. That $50 is deposited (monthly, weekly, or daily) at an account controlled by the franchisor, its affiliate or a vendor. When the $30 of the gift card is redeemed at Location B, $30 is remitted to Location B and Location B counts it as revenue. If the remaining $20 is spent at Location C, Location C would receive $20 as revenue. Franchisors typically rely on a vendor to manage the program rather than developing the accounting and technology procedures themselves.

        Similar questions arise for loyalty programs. What do you do if a customer earns all of the points at Location A (giving Location A the benefit of the purchase revenue) but redeems the points for a free product Location B (giving Location B only the cost of the promotion)? Franchisors have a variety of solutions to this issue, and their approach often depends on industry, technologies available, and size and sophistication of the system. Hotel franchisors are an example of where a robust approach to the loyalty program redemptions is necessary and these businesses use nuanced systems to make the accumulation and redemption of points equitable across locations. In contract, for a start-up retail business, such these adjustments may not be necessary. There, franchisors and franchisees may operate under the “you win some you lose some” mindset.

        5. Researching and complying with federal and state laws.

        State and federal laws aim to protect customers from unethical or fraudulent business practices. To date, these laws have focused on gift cards rather than loyalty programs.

        The Federal Credit Card Accountability, Responsibility, and Disclosure Act of 2009 applies to many types of retail gift cards. This act establishes a minimum expiration date of 5 years, limits the window when inactivity fees can be charged, and mandates disclosures of the expiration date and any fees.

        State laws cover similar topics but can vary widely in their requirements for expiration dates (some states prohibit expiration dates), fees, and required disclosures. Some state laws also require a gift card to be redeemable for cash if the value drops below a certain dollar amount ($10 or $1 commonly). The law most protective to the customer will apply if there is a conflict between the requirements of state and federal laws.

        Some states have escheat laws that apply to gift cards. “Escheat” is revision of individual property to the state. The principle originated to address situations where a person died without a will and no heir could be identified. In some states, a percentage of the unspent money left on a gift card must be reverted to the state (commonly 60%), while the balance can be treated as income. In other states, the entire unspent balance will revert to the state. It can get especially tricky if the expiration date of the gift card does not align with the escheat dates. A reputable gift card vendor can assist with administration of the escheat process, if required.

        Gift cards and loyalty programs are a favorite with customers and can add value to businesses. Under the surface, these programs can bring a host of compliance burdens to franchisors and franchisees alike. Contact your franchise attorney at Manning Fulton for additional advice about how to implement a gift card or loyalty program in your franchise system.

        Federal labor regulators have finally dropped their efforts (for now) to expand franchisor liability for the employment policies and practices of franchisees as the National Labor Relations Board (the “NLRB”) has revealed that it will not appeal a federal court’s decision striking down the NLRB’s October 2023 rule.

        For context— historically, there was a clear understanding that franchisors are not the employers of their franchisees or their franchisee’s employees.

        In October 2023, this understanding was shaken by the NLRB issuing a final ruling expanding the circumstances in which a franchisor may be deemed a joint employer of a franchisee’s employees, and thus expanding potential franchisor liability for employment claims brought against franchisees.

        Prior to the 2023 Rule, the 2020 rule established that joint employer status exists only if a franchisor possesses and exercises “substantial direct and immediate control” over the following essential terms and conditions of employment:

        • Hiring
        • Firing
        • Discipline
        • Supervision
        • Direction

        The 2023 Rule expanded the circumstances in which joint employer status could be established to include indirect control over (or merely reserving the right to control) the following expanded set of essential terms and conditions of employment.

        • Wages, benefits, and other compensation;
        • Hours of work and scheduling;
        • The assignment of duties to be performed;
        • The supervision of the performance of duties;
        • Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
        • The tenure of employment, including hiring and discharge; and
        • Working conditions related to the safety and health of employees.

        For obvious reasons, this created waves in the franchising world as franchisors and their counsel attempted to navigate a new compliance landscape. Language that had historically been acceptable and standard in most every Franchise Disclosure Document would now open franchisors up to joint employer liability under the 2023 Rule.

        Fortunately, this uncertainty was short-lived because in March of 2024, a federal court struck down the new rule for its unlawfully broad scope.

        Nevertheless, it was widely assumed that the NLRB would attempt an appeal, however, in a surprising turn, the NLRB has announced that it will not appeal the ruling, reverting the joint employer standard back to the 2020 rule in which joint employer status should only be found in the rare instances in which franchisors exert direct control over franchisees employees or the terms of their employment.

        While the NLRB has given up for now, this is likely not the end of this story. The NLRB is not pursuing its appeal options, but it may, nevertheless, attempt to come back with a less expansive change to the joint employer rule. In any case, we will continue to monitor and notify our clients of any changes in the law that may affect their franchise systems or the drafting of their Franchise Disclosure Documents.

        For most, the sale of a business is a new experience that requires sellers to learn many entirely foreign processes in a very short amount of time. The many steps to selling your business can be long and tedious, and chief amongst those steps in terms of length and tedium is due diligence. To those unfamiliar, due diligence is the process by which buyers attempt to gain a full, or at least as clear as possible, picture of the business they are considering purchasing. Buyers do this by preparing a due diligence request list which is essentially a list of every question a buyer and their advisors may think relevant to analyzing the condition of the business being sold.

        This request list will touch on most every aspect of the business and will require sellers to explore areas of their business that they may not have considered in decades or may never have considered. That being the case, the due diligence process can be extremely daunting to sellers who are not adequately prepared, so it is important to consult with your legal counsel and M&A advisory firm to begin compiling information early and to hopefully reduce the time, cost, and pain involved.

        To help prepare for the due diligence process, below is a list of what tends to be the most important and lengthy areas of due diligence:

        General Corporate Records. Generally, as the starting point of a buyer’s analysis, they will want to confirm that the entity exists and is in good-standing and that the parties attempting to sell the business have documentation of authority to do so and of their ownership of the business. From the company’s formation and governance documents, minute-books, stock ledger or other records relating to stock or membership interest grants, Buyer will want to see any and all records of the company in order to get a better idea of its history. Additionally, Buyer will expect to see confirmation of the company’s present status in any jurisdiction in which the business transacts business to confirm that the entity is in good standing. To the extent that your company has not perfectly maintained its records in an organized and consistent manner (most sellers will be in this position), preparation for this area of due diligence will be key to reducing the pains associated with due diligence and your legal counsel will be able to help you identify and correct potential issues before they arise in diligence.

        Financial Statements and Records. This is the area of due diligence that buyers tend to care most about as they are attempting to confirm the valuation of the business and therefore the soundness of their investment. Unfortunately, from a legal perspective, there is only so much that can be said other than consult with your accountant. We strongly recommend that sellers begin working with your accountant before they make it to the due diligence process to ensure that your financial records and tax returns are accurate, up to date, and consistent, or to work to prepare an explanation for any inconsistencies.

        Material Contracts. To gain insights into the operation of the business broadly, and, more specifically, the source and security of the company’s revenue streams, its employee, supply and customer relationships, and its debts and obligations, Buyer will expect to see most of the agreements to which the company is a signatory. This will likely be the most time intensive area of due diligence as determining what must be provided, tracking down the executed copies of the identified agreements and accurately describing them in a digestible and acceptable-to-Buyer format tends to require multiple rounds of overbroad requests from Buyer and incomplete answers from Seller. That being the case, it is extremely worthwhile in terms of time and legal expenses for sellers to think through the universe of relationships and agreements necessary or important to the operation of the Business and to work to compile these documents before the due diligence process gets underway.

        As part of this portion of due diligence, Buyer will want to know what may be affected as a result of the sale of the business or the assets of the business. This will entail a review of material contracts looking for any provisions restricting change-of-control (for a stock or membership interest sale) or assignment (for an asset sale) to ensure that the company is not losing its biggest customer or supplier as a result of the transaction. Again, this can be lengthy process to review dozens, hundreds or even thousands of agreements, so the sooner your counsel has access to these documents and can begin reviewing, the sooner these potential issues can be identified and corrected, if possible, and the sooner due diligence can be completed.

        Consents. Depending on the nature of your business and whether you rent or own the real property on which the business operates, there will likely be third-parties from whom consent or approval is required in order to close the sale of your business. The Material Contracts portion of due diligence described above may identify certain suppliers, customers, licensors and/or franchisors, key employees, or other third-parties who must consent to the transaction and the eventual assignment of the business’s relationship with these third-parties to the Buyer. This is one area that is likely to cause delays later in the transaction as getting in touch with these third parties and negotiating their consent or approval takes time. That being the case, it is crucial to identify these individuals early, so that you and your counsel can take the necessary steps to effectively and timely obtain all necessary consents.

        Disputes and Litigation. If your business is being sued, potential buyers will want to know the details and what this may ultimately cost the business. This will likely include both ongoing litigation and any potential or threatened litigation that the owners of the business are aware of or should reasonably foresee. To the extent there are any claims or potential claims against the company, you will want to consult with your legal counsel to determine what needs to be disclosed and to discuss how to resolve the issue or to ultimately approach disclosure to minimize any resulting fallout.

        These are just the areas of due diligence that tend to be the most important and time consuming in the average deal, but due diligence can and often will touch on many other areas of your business, so we strongly recommend working with your legal to counsel to determine what areas you need to consider and prioritize, to identify what your company’s specific pain points may be in this process and to develop a gameplan to address them. Due diligence can be a grueling and expensive part of any transaction, but so long as you know what to expect going in and have worked to prepare yourself, you can and will overcome it.

        You can also read this article on the Trustmark Mergers & Acquisitions / Carolina Business Advisory Services website. https://www.carolinaadvisory.com/blogs/post/due-diligence-what-to-expect-as-a-seller

        While franchising can be a powerful way to grow a brand, the complex and varied laws and regulations governing franchising can intimidate even the most experienced businessperson seeking to expand their business.

        Over the past two decades, Manning Fulton has helped over 100 franchisor clients launch, grow, and protect their brands through franchising. We can take care of every regulatory aspect of franchising, from preparing franchise disclosure documents (“FDDs”) and franchise agreements, to filing federal trademarks, navigating the franchise registration process in all states, and maintaining FDDs to address changes in each client’s system and the evolving legal landscape.

        Business opportunity laws may apply to your franchise system in one or more states, including in Franchise Non-Registration States. Those laws may require additional registrations, compliance, disclosures, or exemption fi lings. Discuss with Manning Fulton franchise attorneys how the business opportunity laws apply to your franchise sales

        Our franchise law team routinely advises franchisors on franchise registration and compliance issues such as:

        • Representing emerging franchisors in developing their initial franchise disclosure document and franchise agreements
        • Assisting franchisors in obtaining and maintaining their state franchise registrations
        • Developing area developer and master franchise programs
        • Acquiring franchise systems
        • Conducting franchise compliance audits
        • Acquiring franchised units
        • Refranchising franchisor-owned locations
        • Preparing franchise transfer documentation
        • Preparing and negotiating supplier arrangements
        • Advising franchisors and executive management on development of franchise system policies including site selection policies, internet and social networking policies, and franchisee audit procedures
        • Reviewing franchise operation manuals for legal pitfalls
        • Technology licensing agreements
        • Trademark registrations
        • Intellectual property protection
        • Franchise terminations
        • Services to help non-compliant and inadvertent franchisors

        Our clients enjoy the benefits of working with a franchise team that has prepared, reviewed and registered hundreds of FDDs, has a deep understanding of federal and state regulations, and has a working relationship with regulators from every registration state. We understand that no franchise system is perfect, and therefore, our lawyers are experienced in dealing with state regulators to bring non-compliant and inadvertent franchisors into compliance. With various pricing options, including flat fees, we take the complexity out of franchising so our clients can focus on what they do best—growing their brand.

        As provided for in the Amended Federal Trade Commission franchise rule, the FTC adjusts the monetary thresholds for three types of exemptions every four years based upon changes in the Consumer Price Index.  Effective July 12, 2024, the exemptions amounts adjusted as follows:

        • Sales where the buyer pays less than $735 (previously $615) within the first 6 months of operation of the franchise.
        • Sales requiring a large investment where the prospect pays at least $1,469,600 (excluding unimproved land) and any franchisor financing (previously $1,233,000).
        • Sales to large franchisees that have been in business for at least 5 years and have a net worth of at least $7,348,000 (previously $6,165,000)

        These exemptions can provide planning opportunities for businesses who want to structure business relationships to avoid the preview of federal franchise regulation.  However, guidance from an experienced franchise attorney is critical to ensure compliance with all of the legal requirements and state franchise and business opportunity laws that may apply.

        Our franchise attorneys are experienced in helping clients expand through franchising as well as structuring compliant exempt relationships.  We also work with clients who are converting their existing licensing program to franchising.

        Have you ever contemplated owning a business? How about becoming a franchisee? This brief guide will provide insights, the typical steps, and timelines into becoming a franchise owner.

        Understanding the Franchising Business Model and Its Perks

        Franchising is a business model that permits individuals to operate their own business under a well-established brand. As a franchisee, you’re given the right to sell the franchisor’s products or services and use their trademark or service marks.

        There are several advantages to becoming a franchise owner. It provides a ready-made business concept and proven operating system, which eliminates the need to start a business from the ground up. Moreover, you benefit from the franchisor’s experience and established business model.

        One of the most significant advantages of franchising is the brand recognition it offers. Consumers are more likely to trust a familiar brand, which makes attracting customers easier. You also reap the benefits of the franchisor’s existing marketing and advertising efforts.

        Assessing Your Readiness to Become a Franchise Owner

        Before starting your journey to become a franchisee, it’s vital to assess your skills and resources. This will help you determine if becoming a franchise owner is the right path for you.

        Begin by identifying your transferable skills. Reflect on your past experiences and consider the skills you’ve developed, such as leadership, communication, problem-solving, and customer service. These skills can be invaluable in running a successful franchise.

        Assessing your financial resources is also crucial. Franchises require an initial investment, ongoing fees, and working capital. Evaluate your current financial situation, including your savings, available credit, and potential financing options. This will help you determine which franchise opportunities are within your reach.

        Becoming a franchisee involves not just financial investment, but also time, effort, and dedication. By thoroughly assessing your skills and resources, you can ensure that you choose a franchise that aligns with your strengths and interests.

        Discovering Different Types of Franchises and Factors to Consider

        Becoming a franchisee involves understanding the diverse types of franchises and determining the right one for you. This decision could significantly influence your success as a franchise owner. Key factors to consider include:

        1. Types of Franchises: There are various franchise opportunities such as retail, food service, entertainment, and home-based services. Each has its unique requirements, costs, and profitability potential. Understanding these differences can aid you in selecting a franchise that aligns with your interests and aspirations.
        2. Factors to Consider When Selecting a Franchise: It’s crucial to evaluate the initial investment, ongoing fees, the brand’s reputation, market demand, industry trends, the franchisor’s level of support, growth potential, and the terms of the franchise agreement (read our article: Breaking Down Franchise Agreements: 10 Things To Know. ) Your skills, experience, and passion for the industry are also key factors to take into account.
        3. Researching Franchise Opportunities: Conduct thorough research and explore various franchise opportunities. Attend franchise expos and informational sessions, and talk to existing franchisees to gain industry insights. This due diligence will aid you in making an informed decision.

        Financing Your Franchise Investment

        Understanding the costs and fees associated with franchising is crucial. Franchise costs can vary widely depending on the brand and industry. They typically include an initial franchise fee, which grants you the right to operate under the franchisor’s brand and receive ongoing support. Additionally, there may be ongoing royalty fees or monthly marketing fees. Many potential franchisees may require financial assistance to cover the initial investment and working capital. There are various financing options tailored to franchisees.

        Due to the stability and profitability potential of established franchise models, banks often offer specific loan programs for franchise investments. Some franchisors offer financing assistance or partnerships with preferred lenders to help franchisees with their investment. Be sure to explore and understand the terms and conditions of these financing options before choosing one.

        Steps to Becoming a Franchisee

        Step 1: Self-Assessment, Research, and Identify Potential Franchises

        Begin by researching potential franchises that align with your interests, skills, and goals. Consider the factors discussed above.

        Step 2: Initial Contact.

        After identifying potential franchisors, reach out to them to express your interest. This is typically done through an online form on the franchisor’s website. The franchisor will then contact you for an initial discussion. This will also be a great opportunity to request their franchise disclosure document (“FDD”).

        Step 3: Analyze Franchise Disclosure Documents

        After shortlisting a few franchises, analyze their FDD. The FDD provides crucial information about the franchise’s financial performance, obligations, fees, and restrictions. Consider engaging a franchise attorney to review these documents.

        Step 4: Seek Legal and Financial Advice

        Before making any commitments, seek advice from professionals experienced in franchising. They can help you understand the legal implications, evaluate your financial readiness, and guide you through the entire process.

        Step 5: Discovery Day

        Discovery Day is an opportunity for you to visit the franchisor’s headquarters, meet the team, and get a firsthand look at the operations. It’s also a chance for the franchisor to evaluate you as a potential franchisee. Be prepared to ask questions to learn more and clarify possible information from the FDD.

        Step 6: Validation

        Validation involves speaking with current franchisees about their experiences. This can provide valuable insights into the day-to-day realities of running the franchise and their experiences with the franchisor with questions such as: are they fast to respond to inquiries? Do they provide sufficient training? Do they provide sufficient support?

        Step 7: Secure Funding for Your Franchise Investment

        Securing funding is a critical step. Explore various financing options such as loans, grants, or personal savings. Prepare a comprehensive business plan and financial projections to present to potential lenders or investors.

        Step 8: Sign the Franchise Agreement

        After completing your research and securing funding, it’s time to sign the franchise agreement. Review the agreement thoroughly and seek legal advice to ensure you understand the terms and conditions.

        Step 9: Training and Opening

        Once the agreement is signed, you’ll undergo training to learn the ins and outs of running the franchise. After training, it’s time to open your doors!

        By following these steps, you can navigate the process of how to become a franchise owner with confidence. Thorough research, professional guidance, and careful evaluation are key to a successful franchise investment.

        If you are looking to purchase a franchise as a prospective franchisee and need legal assistance reviewing the franchise disclosure documents and franchise agreement, or if you own a business and are looking to take the next step into franchising, please contact Elliot Boerman or one of our franchise attorneys at Manning Fulton or visit our website at www.manningfulton.com/services/franchise-hospitality to review our Franchising services.