Three Ways to Make Your Item 19 More Meaty
More than ever, savvy franchise buyers are honing in on your FDD’s Item 19. After all, it’s the closest they can get to answering the almighty question, “How much money can I expect to make?”
So how can you make your Item 19 accurate, precise, and engaging?
1. The more, the better.
To some degree, it’s up to you how much info you include in your FDD, but many of the CEOs we work with have really beefed up their FDDs to ensure candidates really know what they’re getting into when they buy a franchise.
Jim Carpenter of Wild Birds Unlimited said they spent two years looking at franchisee financial information in order to include a franchisee adjusted net operating income in their FDD.
Even if you already have an Item 19, you may want to go back and consider adding more information to it. More is truly better in terms of what you can offer to a prospective franchisee on the front end to ensure their success on the back end.
2. Honesty is best.
The purpose of your Item 19 should be to educate prospective franchisees about what they can expect as an operator. It should NOT be to sell franchises. You might be tempted to paint a rosy picture by including only information that tells a best-case scenario, but in today’s business climate, full disclosure is always better.
In the long run, you want franchisees who make you money, which means you want franchisees who knew what they were really getting into from the start.
3. Involve the right legal help.
A franchisor once shared that he’d been reluctant to add an Item 19 to his FDD because his legal team advised against it. Our advice? Get a new legal team. Maybe not for all your legal needs, but for this—adding the FDD—you need a lawyer with Item 19 expertise. Ask around (or ask us) for some names of lawyers others have worked with.
If you still happen to be one of the increasingly rare franchisors debating whether to include an Item 19, just do it! The reality is, it’s no longer a choice. Prospective franchisees want it, your competitors are most likely providing it, and in our “transparency is king” world, an FDD without an Item 19 is like a president without a birth certificate. You open yourself to all sorts of questions by not having one, so it’s better to just include it.