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Is Bigger Always Better?

By Newsletter

Many years ago I represented a franchising company with a philosophy that the sale of franchises was paramount no matter how it was done. The company stressed franchise sales so much that their only qualification to become a franchisee of the company was whether the prospect had enough available credit to pay the initial franchise fee. As the company began selling more franchises, problems began to occur. With no solid foundation upon which the company had been built, litigation became common-place. The more sales – the more litigation. The company continued to ignore the real problems and adopted a mindset that even if only 50% of new franchisees survived, the company would still grow. 

Imagine a franchise company with a Franchise Disclosure Document (“FDD”) which told the story of a 50% failure rate! But how could this franchise company have expected anything more? Signing up franchisees who did not have sufficient capital to run a business was a death spiral. The franchisees started business with two strikes against them. It wasn’t long until the franchisor found that franchisees who weren’t able to pay royalties and who were losing their businesses, led to multiple lawsuits which then led to a complete drain on the franchisor’s resources, and ultimately the demise of that company.

So is bigger always better? The answer is definitely no if the company fails to start with a solid foundation under it. A solid, successful foundation starts with a truly good management team. In the beginning, that team may consist of franchisees or that team may consist of only a couple of key people. As your company grows, search for and bring in qualified team members who understand the market, your competition and the kind of franchisees that will help your company get name recognition and dominate in your field. Perhaps you are in that interim stage where you are not quite big enough to attract the team members you know you need. Consider using a Consultant who has the expertise you need and can fill the void until you are able to afford those essential members on your team. There are any number of good franchise consultants who have the essential knowledge needed and have the years of experience that help provide the solid foundation you may be lacking.

So before your company leaves the starting gate, make sure you have the building blocks under it to be successful. Build the team that will lead your company to success. Use consultants when necessary to bridge the gap. Create a plan that helps your franchisees become successful. Successful franchisees build a successful franchise system. With a solid foundation you can then have the type of company that can be as big as you want it to be!

Thank You!

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If you are a franchisor wondering if expansion is right for your business, feel free to reach out to us at 205.408.3025 or email

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Your Operations Manual – Is It A Legal Minefield?

By Newsletter

The judges in our courtrooms have become much better educated about the requirements of the Federal Trade Commission’s Amended Franchise Rule (“Disclosure Requirements and Prohibitions Concerning Franchising”) and are often very aware that a Franchise Disclosure Document (“FDD”) must be provided to a prospective franchisee prior to purchasing a franchise. The requirements for Item 11 of the Amended Franchise Rule supports the supposition that prospective franchisees are entitled to rely on the information within the Operations Manual, particularly those areas identified in the manual’s Table of Contents set out in Item 11 of a franchisor’s FDD. Yet the most important document that acts as a road map of a franchisor’s entire system, houses a franchisor’s trade secrets, and governs much of the working relationship with franchisees, receives very little, if any, review from a company’s franchise counsel.

To avoid being trapped, franchisors and counsel must conduct a legal review of the franchisor’s Operations Manual. It is suggested that a review encompass, at a minimum, the following areas:

  • Joint Employer Liability
    • Avoid any employment related advice involving hiring, firing, wages, or discipline of franchisee’s employees.
  • Discrimination Clauses
    • Title VII of the Civil Rights Act of 1964 prohibits discrimination in any aspect of employment. The power of a franchisor to control operations should be reviewed as a potential liability issue.
  • Good Faith Standard
    • Any Operations Manual may fuel claims that a breach of the covenant of good faith and fair dealing occurs where the Franchise Agreement and Operations Manual conflict.
  • Safety and Security
    • A franchisor may be held liable for any harm suffered by third parties based upon both policies set forth in the Operations Manuals, and for the lack of policies.
  • Environmental Laws
    • Franchisors may be found liable for negligent advice contained in the Operations Manual covering environmental issues.
  • Anti-Trust Liability
    • Pricing information in the Operations Manual can create legal issues and has been used by courts to find anti-trust liability.
  • Deficient Manuals
    • Courts have found liability where manuals were not delivered at all or not delivered timely. I believe it is only a matter of time until an educated plaintiff’s attorney is able to take an Item 11 disclosure in the FDD and the section of a franchisor’s Franchise Agreement dealing with the Operations Manual and convince a court that the Operations Manual given its franchisee is deficient or that it is not properly updated, supplemented, or revised.
  • Copyright
    • For the small Franchisor that outsources the Operations Manual, be careful. The company you hired may own the copyright. The owner of the copyright has exclusive authority to authorize reproduction and distribution of the manual, not the franchisor.


    Operations Manuals are an integral part of a franchise system. Franchisors who fail to include their franchising counsel in the development of all manuals may be easy prey for the hungry plaintiff lawyers.

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