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Franchise Disclosures

In this transcript, Clay Clark (US SBA Entrepreneur of the Year) talking with Terry Powell ("the father of franchising" and founder of Entrepreneur's Source) about franschise disclosure receipts on Thrive15.com, one of the top business schools in Michigan! 

Clay:    All right, we are joined here today with Terry "Boom Boom" Powell. 

Terry:    Boom. 

Clay:    All right. Now, my friend, we are talking today about an exciting topic. It's a topic that really doesn't matter, though. It's called franchise disclosure receipts. Terry, a lot of times in business, we start to throw around jargon or various insider-only words. Where it's like we say it so often, we just start to refer to things, and then people who don't know the industry can't really have any context or any grasp of what we're saying. One of them that I hear a lot is this franchise disclosure receipt. Can you explain to me real quick the idea of why we need a franchise disclosure receipt? What's the point? Why we need one. 

Terry:    Well, the document is really the F.D.D. that every franchise provides their perspective franchisee prior to awarding them a license. 

Clay:    How does the receipt play into that franchise disclosure document? 

Terry:    Yeah, the receipt is something that's required that the recipient of the document sign and date, and there's no commitment from them on that part. It's just acknowledging that they received it, because it's required before they can be awarded a franchise, regardless of whether they ever decide to do that franchise. In order to get that franchise disclosure document, they have to acknowledge the receipt. 

Clay:    Just so that my third grade mind can fully grasp this, just kind of review, it's like a single page receipt where you have like the name and your date and your signature.

Terry:    Yeah, that's it. 

Clay:    I can't, due to federal regulations, the Federal Trade Commission, I am not allowed to buy a franchise unless I, until I've signed that 14 days prior to the day I want to buy it. Is that right? 

Terry:    The most important part for everyone to understand is, because you're signing that receipt doesn't indicate that you're going to invest in that franchise or ever own it. It just gives you the opportunity to have all the information to be able to determine that, whether you ever invest in it or not. The receipt is just acknowledging that we provided that to you, regardless of what the outcome is, whether you're ever going to join the franchise. 

Clay:    On behalf of pigheaded entrepreneurs everywhere, I am the private captain of this team, where sometimes we get stuck on an idea, and we don't want to get off it. We're just hell bent on it happening. 

Terry:    Sure. Mm-hmm (affirmative)-

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Clay:    If I'm saying I'm not going to sign anything, I will not sign anything until I know if I'm going to buy it or not. 

Terry:    Yeah. 

Clay:    What would you say to that person. 

Terry:    I would say that's not an unusual reaction, and we hear that frequently and understand what your concern is. Let's just kind of walk you through what the receipt is designed to do and how it's really in your benefit to be able to get a trove of information that's going to be valuable in getting to that point or not. The receipt is just acknowledging that fact. 

Clay:    For the franchiser's perspective, the franchisor, I have to get it to the franchisee, the perspective franchisee, and they have to have this document 14 days before they can buy a franchise. From the franchisee's perspective, I need to have this document, this [inaudible 00:04:12] the company receiving the franchising disclosure document. I need to receive this as part of that package. 

Terry:    Well, you need to receive that information because it's valuable and the Federal Trade Commission put it together to benefit the perspective franchisee, not the franchisor. 

Clay:    Okay. 

Terry:    It's valuable information that you're going to receive. It doesn't obligate you in any way, never determines whether you're going to invest in that franchise. It's provided to you, but it's information that's available to you that you'd want to have. 

Clay:    If I'm looking to buy a franchise, this is actually something that's designed to help me. This is like a consumer protection law sort of thing.

Terry:    Exactly. All the F.T.C. regulations relating to disclosure are really designed to benefit potential investors in franchising. 

Clay:    For anybody watching this, if you're not familiar with the International Franchise, what is it? 

Terry:    Association. 

Clay:    The International Franchise Association, it's an organization that helps provide a lot of statistics about buying a franchise and franchising and the prevalence of it in America and all over the world. One thing you're going to find is that when you buy a franchise, you're so much more likely to succeed than if it's an independent business start-up. 

Terry:    Absolutely. 

Clay:    The statistics are amazing, and it's because there's so much vetting and there's so much transparency that you have to have in this industry. Is that correct? 

Terry:    That's absolutely true. There's more regulations protecting an investor in a franchise than Securities and Exchange has for stocks and bonds. 

Clay:    Final question that I have here for you, because I don't think people, if all they watch on Thrive is this particular episode, I don't think they get an idea for the level of passion that you have about the franchise business model overall. In your mind, why are you so passionate about the franchise business model? 

Terry:    Well, I actually started off with a passion about entrepreneurship and helping people discover entrepreneurship, and then I really became more knowledgeable about the franchise model as a vehicle to do that, and quickly, some 30 years ago, shifted my passion into helping people determine whether the franchise model would be the best method to due that, because of the regulations, the transparency, and of course, the success track. 

Clay:    How many franchisees have you worked with over the years? 

Terry:    We've been doing this for over 30 years. We have a group of 200 coaches throughout North America, and in the tens of thousands of individuals that are achieving their dream as a result of a franchise business model. 

Clay:    I love it. You've worked with tens of thousands. You're bringing the clarity. You're bringing the knowledge. I'm going to get one more boom from you. 

Terry:    Boom. 

Clay:    Boom. 

 

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