The franchise “Double Wink”

The franchise “double wink”

What is the franchise “double wink”?

The franchise “double wink” can be described as a method for a franchise rep or one who presents you with a franchise opportunity to disclose financial information they shouldn’t be disclosing.

Any information not contained in the franchise disclosure document under item 19 may not be provided unless disclosed.  This pertains to FPR’s or franchise performance representations. 

A description follows:

A financial performance representation, or FPR, includes any oral, written, or visual representation to a prospective franchisee (including a general dissemination in the media) that states or suggests a specific level or range of actual or potential sales, income, gross or net profits, or “break-even” figures.

I recall a discovery day visit to a N.Y. franchisor of a “Ranchy” type  chicken franchise. This was some 10 years or so ago and has likely changed since.

During the slide show presentation the representative popped up a slide that included profit and sales information not included in the franchise disclosure document.

“How did that get in there?” he asked with a smile.  He then excused himself for a moment while the slide remained up…providing just enough time for us to read it carefully.

Upon his return he apologized for it being there and moved on with the presentation.

Could this have been an actual error?  Unfortunately I think not.  It was a deliberate “double wink” effort.

Example 2

Another example goes something like this.  A relatively new emerging franchisor hasn’t the data to yet provide a realistic FPR.  The rep goes on to say something along these lines:

“The per “job” profit is roughly 30%”.  “The average job is about $6,000.00”.  “We expect our Franchisee’s to do roughly 125 jobs per year”.  And then came the “double wink”.

“You do the math.”  

Even if true, the statement violated the FTC rule regarding disclosure.

Example 3

Last, another example by way of dissemination in the media:

 

True or not can be argued.  The problem in this example is that the data described is nearly 3 years old and not representative of Franchisee data but rather company operated data.

There are so many more examples of the “double wink” that it would take 4-5 times the size of this article to outline them all.

Point being if you’re ever faced with the “double wink” find the nearest exit. 

The only information you can possibly rely on is that information included in the FPR which YOU have verified by doing your due diligence and speaking with Franchisee’s.

Ask the franchisor to provide you with the details in support of the FPR item 19 they disclose as well as information supporting item’s 5,6,7, and 21 of the FDD.  

You are NOT limited to researching and verifying these items alone as there are other integral portions of the FDD that must be understood and verified.  Advice here is to have your franchise attorney and franchise accountant assist you.

Conclusion

The FDD can be a valuable resource for taking that “deep dive” into a franchise as part of your journey.  

The article is not meant to disparage franchisors as, in my experience, most avoid the sort of violations I’ve included here. 

Just be certain to be extremely aware and wary of the franchise “double wink”.  If you’ve done your research and understand the point being made in this article you’ll know when, and if, it happens to you.  

Do not allow it.

As always I leave you with this.

“Do the right thing, you’ll sleep better”

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