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Blog
Franchising's new disclosures
June 20, 2008
Eleven days from today, the Federal Trade Commission's amendments to its Franchise Rule take effect. The changes, approved more than a year ago, give prospective franchisees more "material" information about franchisors. (FAQs here.)
And that's a good thing, declares Jordan Krolick, president and chief executive officer of Stevi B's, an Atlanta-based pizza-buffet chain that is franchising. Krolick, a lawyer, has been directly or indirectly involved with development since 2000, when he headed up McDonald's then-busy M&A effort as director of strategic planning. In March, he joined 30-unit Stevi B's after its founders sold it to a private equity firm.
I mention Krolick's background because he recently finished completing his company's Franchise Disclosure Document, which is replacing its UFOC, and thinks the information he's now required to disclose to prospects will help his company grow.
Franchisors now must disclose the business affiliations of insiders -- whether they are shareholders, for example, in a distribution company that supplies franchisees. Krolick recalls his McDonald's days. "We sometimes looked at companies and we didn't know where the money was coming from. I'd want that really clear," he says.
Stevi B's: Happy with new disclosure rules
Then there's the change in litigation disclosure, which now requires franchisors to disclose a summary of all the lawsuits they've initiated against franchisees in the prior year. "It requires explaining, sure, and it open up issues. But it lets the franchisee know we are being vigilant," Krolick says, adding a person is buying into not just a franchisor but a system that's the sum of all the franchisees. "I want the franchisee to know they are also trusting all these other franchisees."
It might strike some as odd that Krolick supports the new disclosures, which would seem to favor franchisees. But he doesn't see it that way.
"People are making life decisions. You want to know what the company is doing," he says.
Posted by David Farkas on June 20, 2008 | Comments (0)