Call for a CONSULTATION: 317-819-0500

Decoding the Franchise Disclosure Document From A to Z – Item #15

How much time do you want to spend on your franchise…..?

Officially titled, ‘Obligation to Participate in the Actual Operation of the Franchise Business,’ Item #15 of the FDD will tell you just that. So, pay close attention to this Item, because if you want to be a silent owner – not day-to-day operator – you need to make sure your chosen franchise will even allow it. And, yes; they can control that.

What you’ll learn:

  • Your legal obligations to supervise daily operations of the franchise
  • Recommended forms of ‘on-site’ management, and
  • Qualifications required of employees and managers

You will be evaluated by the franchisor – particularly your management style – so knowing what they’ll be looking for is crucial.

Why is this important?

It’s important to understand that, as a franchisee, the franchisor will have a very direct relationship with you but only an indirect relationship with your employees. That means everything will roll uphill! As the proprietor of the franchise, you will be held responsible for anything and everything that goes on within your franchise location because the franchisor will have very little control over your staff, but direct influence over you. You may discipline an employee for a mistake, but the franchisor will look to you for answers, not them.

That in mind, many franchisors require that their franchisees themselves be on-site managers and are not allowed to hire a third-party supervisor. This way, the franchisor can keep tabs on the management, maintaining quality control and the status quo – both essential to a successful franchise model. If they don’t actually require on-site management, they may – instead – give recommendations for management style. Remember that Item #11 is also very useful because it tells you how much on-going training and support you’ll receive from the franchise. Be sure to reference back to #11 so you can look ahead and see how much training you’ll be required to take.

That said, some franchises will allow franchisees to be silent owners. In these instances, the franchise must state in writing the specific qualifications required for your managers and employees, including education level, training, skill set, etc. For some great tips on hiring a successful franchise staff, see this recent article from Entrepreneur.com.

As with the other Items, there are always red flags to look out for. First, keep an eye out for odd restrictions placed on managers. For example, if the franchise requires that your managers own stock in the company or attend an excessive amount of training, then it may be a sign that something is amiss or they’re trying to boost their books. On the other hand, if Item #15 is vague and offers very little instruction on the day-to-day management preferences, then dig a little deeper and find out why. A franchise that’s a free-for-all is hardly a franchise at all.

The bottom line is that Item #15 dictates the management-style of your franchise and your own personal work load. For some of you, franchise ownership is about sitting back and watching your money grow – hopefully! If that’s what you’re looking for, then you probably shouldn’t invest in a franchise that requires you to be boots-on-the-ground every day. If you’re excited to dig in and can’t wait to get your hands dirty, though, then know the franchisors management-preferences well so that you can hire a great team and adapt to the franchise model – this, in turn, will only help you to be more successful!

Next stop is Item #16 on the FDD, covering the restrictions on what you can sell. VERY important, so don’t miss it!