Correcting the Record: The Franchise Relationship and the New York Times

IFA member companies and the hundreds of thousands of franchise owners around the country generate opportunities in communities every day. Franchising as a business model has spurred entrepreneurship in every corner of America and rapid growth around the world. In the U.S. alone, franchising accounts for 3% of GDP, 8.4 million jobs, and almost 800,000 commercial establishments delivering quality and value to their customers on a daily basis. Unfortunately, franchising is often misunderstood and recent reporting from the New York Times leads to common misperceptions about the business model – failing to include why it has worked for generations for hundreds of thousands of entrepreneurs and the millions of the people they support.

Since its inception, franchising has provided business owners a way to go into business for themselves, but not by themselves – with an established business model, a recognizable brand, and a network of support – in exchange for a fee and a contractual agreement that governs the relationship. Every franchise relationship is built on a franchise agreement – with terms and conditions agreed upon before any business can take place. These franchise agreements can govern everything from the design and type of location, product or equipment requirements, advertising, and the brand standards that are fundamental to franchising. These standards provide consistency and quality across a network of independently owned and operated franchise locations and help ensure that consumers receive the same quality product or service they associate with a particular brand, whether they are visiting a location in Tempe, Arizona, Zanesville, Ohio or anywhere else in between.

It is undeniable that franchising accelerates opportunity for individuals who might not otherwise have the opportunity to own their own business. However, franchising isn’t for everyone, and receiving a license to operate a franchise does not guarantee success. It is incumbent on both the prospective franchisee and the franchisor to ensure the match is the right fit. “Fit” is more than understanding business terms. Both the franchisee and the franchisor should be aligned on interests, values, and the importance of enforcing and abiding by the brand standards that are essential to preserving consumer expectations, the value of each franchisee’s investment, and the health and stability of the franchise system. Due diligence on both sides of the franchise relationship is essential so all involved parties understand their obligations, have similar expectations, and avoid misaligned priorities.

These goals are greatly enhanced by the Federal Trade Commission’s (FTC) Franchise Rule. Established in 1978, the Rule’s disclosure regimen ensures that prospective franchise buyers are given the information they need to understand the risks and potential rewards of joining a franchise brand. Part of this required disclosure includes the Franchise Disclosure Document (FDD), which contains information about franchise operations such as required fees, initial investment, company history including bankruptcy and litigation, financial statements of the franchisor, and earnings claims – all so an interested party can determine if this is the right business for them.

In addition to this information, when considering a franchise opportunity, a would-be entrepreneur should do their homework – not only by looking into business operations and financials, but also culture and style. The FDD contains a wealth of information regarding the franchise opportunity, including the contact information for other franchisees. Those seeking opportunities in franchising should take advantage of all these resources to make sure their abilities, interests, values, and expectations align with those of the franchisor.

Only you know what will work for you. Make sure the opportunity being presented is the right fit.

The robust regulatory regime governing the business model works to protect both sides in the franchise relationship – requiring disclosure of the appropriate amount of information to facilitate business decisions while also not hindering the opportunity for future business growth.

As with any business, nothing is guaranteed. Franchising has proven time and time again that it opens doors and accelerates entrepreneurship, and IFA strives daily to help individuals and businesses succeed in business ownership by providing public education on how to make the right franchise decision. After all, franchising is a true win-win: It only works when both sides are successful. When franchisees are successful, their brand benefits. Conversely, without successful franchisees, the brand fails. With that shared success comes countless community benefits including job creation, the opportunity for career advancement, and the ability for a small business owner to grow and expand their entrepreneurial enterprise.

IFA works every day to protect, enhance, and promote franchising so more individuals here in the U.S. and around the world can achieve their dreams of entrepreneurship.