Item 20 – a goldmine of information

One of the great benefits of buying a franchise in America is that federal law requires franchisors to give every prospective franchisee a Franchise Disclosure Document (FDD). But prospective franchisees routinely overlook one of the most significant items in the FDD: List of Outlets.

Too often, prospective franchisees do not read the FDD – even though it’s written in plain English, not legalese – or they give the document to attorneys to read without reading it themselves. It’s important to read that document, and especially to not only read but utilize Item 20: List of Outlets.

Item 20 represents a goldmine of opportunity for prospective franchisees. The List of Outlets includes the names and contact information for the franchise company’s existing as well as former franchisees. Calling and visiting those franchisees can glean much of what you need to know about the franchise offering!

Prospective franchisees sometimes avoid contacting existing franchisees for fear they won’t talk to them. Some franchisees, for any number of reasons, including they’re having a bad day, or they don’t want to see new franchisees come into the network for fear of competition, will not take calls from prospective franchisees or share information with them. But don’t let that stop you from contacting franchisees.

Call a random number of franchisees

Not all franchisees are the same; some will be pleased to talk to you and others will even invite you to visit with them to learn more about the franchise in question. If the List of Outlets includes 100 franchisees, randomly call 10 of them. If those 10 are not responsive (and at least some will be) call 10 more.

Franchisors are not permitted to tell you which franchisees to call and which to ignore. That’s for your protection – wronged franchisees, if they exist in the list, should be heard. Keep in mind, however, that disgruntled franchisees may say anything to discredit the franchisor. That’s why it’s important to call more than just a couple of franchisees. Franchisees who become disgruntled, through no fault of the franchisor, develop a reputation, and you need to hear from franchisees without an axe to grind.

Look for franchisees like yourself

Franchisors can tell you the names of franchisees who have backgrounds similar to your own. For example, if you’re a teacher and you want to speak with franchisees who were teachers, the franchisor can share that information with you. If you’re buying your franchise in a small city, the franchisor can give you the names of existing small-city franchisees. And so forth. There’s nothing wrong with matching up your circumstances and interests to existing franchisees.

Should you worry that the franchisor pays franchisees to tell you and other prospective franchisees only good things about the franchise opportunity? If you’re concerned about it, raise the issue with both the franchisor and the franchisees. For example, “Do you get paid to say good things about the franchise?” However, if the franchisor rewards franchisees for speaking to prospective franchisees, the rewards must be disclosed in the FDD. Failure to disclose this information puts the franchisor at risk with the federal government.

If you can find them, former franchisees can help

You may be wondering about the “former” franchisees listed in Item 20.  Franchisors are required to disclose information about them, but former franchisees are generally difficult to find. Their contact information is usually outdated once they leave the franchise network. If the former franchisee successfully sold his business and moved on, he may gladly speak with you, if you can find him.

Sometimes existing franchisees will tell you how to do that. However, former franchisees may also include failed franchisees, or franchisees who were engaged in lawsuits with the franchisor. Their stories may be interesting, and even useful, but they’re not likely to talk to you. That’s okay, especially if you can find a good number of existing franchisees to share their stories with you.

Whatever you decide to do, make use of Item 20. It’s a goldmine of information for prospective franchisees.