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Franchise, Business and Risk Management Consultants
Empowering the Entrepreneurial Dream

So You Think You Can Dance first aired in July of 2005. The judges - all accomplished dancers in their own right - invite celebrities and dancers from a wide spectrum of backgrounds to audition for the show. The dancers than go through a series of auditions in which they are required to perfect multiple styles of dance - most of which they are largely unfamiliar with. The Emmy Award winning show eliminates one contestant each week until the finalist is revealed.

Deciding to franchise your business is very much like participating in the So You Think You Can Dance competition:

  • You come into it with a well-defined set of skills
  • You are forced to develop additional skills that go far beyond your expertise in running your business, and
  • You must audition before a number of judges who may or may not select your brand.

So here are three things you should know before you decide to enter the competition:

One - You will be judged on 23 items regardless of your industry

The Franchise Industry is regulated by the Federal Trade Commission (FTC). The FTC requires that every franchisor provide to prospective franchise candidates information that will help them make an informed decision regarding the franchise offering. The purpose of this document is to supply information to the investor (judge) before they commit to becoming a franchisee. The document that is provided to the candidates contains 23 items and regardless of industry, size, or success, all franchisors must follow the same format. The document is called the Federal Disclosure Document and is commonly referred to as the FDD.

Two - Compliance with the Franchise Rule is not optional

The FTC and various states have disclosure, registration and/or notice laws regulating franchise sales. Back in 1970 when the FTC took over regulation of the franchise industry, this document was called the Uniform Franchise Offering Circular or UFOC. Compliance with the document became known as the "Franchise Rule". On July 1, 2007 the FTC Amended the Franchise Rule and by July 1, 2008 all franchisors had to convert to the Amended FTC Franchise Rule format. In addition to the Franchise Rule the following states have disclosure, registration and/or notice laws regulating the sale of a franchise: California, Hawaii, Idaho, Indiana, Maryland, Michigan, Minnesota North Dakota, Oregon, Rhode Island, Virginia, Washington, and Wisconsin

Three - Non-Compliance will result in fines

Section 5 of the FTC Act requires that violators of the Franchise Rule face civil penalties of up to $16,000 per violation. "I did not know" is not an acceptable defense strategy. Not understanding what it takes to become a franchisor before you decide to walk down that road could end up costing you a lot of money and damaging your reputation.

Understanding the steps you can take to reduce your risk of being eliminated by the judges is the first step in deciding if franchising is the best growth strategy for your business.

Our unique due diligence process based on an in-depth knowledge of the franchise industry and the core principles of sound risk management and business development will help you understand the risks and rewards associated with franchising your business.

Contact us for a free consultation today!