FTC Franchise Rule Comments – Important Franchisee Action Required

I own (x number) of (name of franchise) franchises, located in (enter your state), and in total have a staff of (enter your number of employees). I am making these comments as these issues not only impact me, but also my employees and my ability to pay higher wages and/or benefits. 

When buying my franchise, I was given financial information that was not included in the disclosure document and before signing my franchise agreement. While I signed a questionnaire saying I didn’t rely on information outside of that disclosure document, that was not true, however, I knew that would preclude me from making the franchise purchase if I answered truthfully. 

I have continuously been asked to make investments that were not disclosed in my disclosure document for new programs and/or remodels. These additional investments have significantly changed my return on investment, and most often come without a verified business case from the franchisor. Any increase in sales from my investment is nothing but additional profit for my franchisor, with no risk or expense to them.  

My franchisor has often made changes to the Operations Manual that are changes to my contract, outside of normal operational changes, that impact my ability to be profitable. For example, hours of operation, expensive remodels, limitations on the number of outlets I can sell at a time, and more. These are items that were not disclosed to me and could have had significant impacted on my decision to buy this franchise had they been disclosed. 

My franchisor has continued to increase the amount of rebates and/or fees they receive from vendors. This is poorly disclosed in the disclosure document, and the disclosure does nothing to limit these requirements in the future. These rebates and fees add to the costs of my business. While I was told the importance of group purchasing power, in fact, I often pay higher costs and fees for products and services that are readily available to the public. These are really nothing more that indirect royalties I pay, yet not disclosed to me as that. 

My franchisor mandates I purchase products and services from affiliated companies, at higher costs that like products commonly available. While the disclosure gives the revenue amount for affiliated companies, it does not give the markup or profit that company is receiving. These additional costs are nothing more that undisclosed, indirect royalties to the franchisor, yet are really ongoing costs to me as a franchisee, and should be disclosed as such, and limited to the level disclosed. 

When buying my franchise, and in the disclosure document, I was told the marketing fund I contribute to would be used for the benefit of franchisees. However, my franchisor gives little accountability to that fund and unilaterally makes the decisions on how to spend it. I question if those funds are actually used for advertising the franchisees’ businesses. I also question if those funds are actually benefiting the franchisees by increasing their bottom line, or only driving the top line revenue which increases franchisor royalties.