CNBC’s recent show examining the world of franchising offered a reasonably insightful and balanced overview of franchising (i.e., about as much insight as you could expect to be squeezed into a 60-minute program). This was no fluff piece as stories of franchising success and failure were given equal attention. Perhaps the most interesting segment of the program–and what generated the most chatter among the franchising community–was a new franchise system with a very well-known brand promoting its franchise program as revolutionary in the sense that its franchisee royalties are based on “net profits” instead of gross sales which is the norm in most franchise programs. This claim caught the attention of many franchise industry experts who quickly started asking questions as to how such a program could be structured. As is often the case in the business world, the devil proved to be in the details, and once the actual language of this franchisor’s Franchise Disclosure Document was examined, the “net profits” concept seemed to be not quite as revolutionary as viewers might have believed from watching the show. Perhaps the key takeaway point for all would-be franchisees who saw the show is as simple as it is critically important–in the course of investigating franchise opportunities, never commit to anything based on a persuasive sales pitch or marketing presentation, always do your home work and carefully review all underlying documentation with experienced professionals so that you can be in a position to make informed decisions and fully understand what you are signing
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