It's the same story over an over again. You found your dream franchise, you went to headquarters, fell in love with the service, the founders love you and offered you the franchise. Now you're staring at this 200 plus page Franchise Disclosure Document in front of you and a Franchise Agreement they need to review and sign.
Panic ensues. Did I miss any section? What does that line mean? Should an attorney be reviewing this? My brother-in-law is an attorney. Should I give it to him?
We sat down with Kit Higgs for a Q and A to answer your top FDD/ Franchise Agreement questions.
Kit Higgs founded Kit Franchise Law in 2019, focusing solely on franchise law providing a holistic and humanistic approach to prospective franchisees. What sets him apart is that he has been on BOTH sides: the franchisor and the franchisee, giving a well-rounded perspective on why each clause exists, what can get negotiated, and more. You can read more about Kit here.
Natalie Gold: Would you mind by giving us a little bit about your professional background?
Kit Higgs: Thank you, and thank you for having me. I really appreciate this opportunity to to tell my tale, and also just talk about what what I do in in in Franchise Law.
I was a prosecutor and child abuse and juvenile delinquency, and got a call from a a buddy who started a franchise sales organization and said, "you know, come, come, join us in franchising", and I had no idea what franchising was, but immediately was intrigued and wanted to learn more about it. After about a month of mulling it over, I decided to leave the prosecutor's office and join him. And and that was a franchise sales organization St. Gregory Development Group. And that's where I really cut my teeth and started out in legal compliance and reviewing all the free franchise, sales, presentations, and a lot of other materials and laws for the franchisors that we represented. We represented over 30 different brands, and at that time I think, we sold over. Oh, Jeez, it would have been thousands, probably, of franchises. It was ridiculous, it was crazy. We sold a ton, and so got to experience a lot of different brands, some good ones, some bad ones. It was really great. Why, I think I got the the most experience and the best relevant experience for what I do now was we launched a brand called Cyclebar, where I launched it from the ground up. This is a franchise that start off with 0.
I followed all the paperwork and did all that created legal department, legal compliance department, everything.
And launch that brand and that took off like a rocket ship we sold. There's 250 locations in a couple of years.
After we got these first franchises open, got to actually take the franchise agreement and actually implement it. And so I can understand. You know why certain clauses are in a franchise agreement, because I've had to use them and to enforce them. You know the the agreement between the franchisor and the franchisee.
It's been a crazy ride. It's been a lot of fun. And and right now I love my job. Just helping new entrepreneurs get involved in franchise.
Natalie Gold: That's what I think is so special about your background is, you've been on the other end on the franchise or side. So when you're reviewing documents for people or giving them advice on the franchisee side. You can show them the lens of why things are written in a certain way. How likely are they to be implemented right, and what the the true meaning is and it just gives you such a more well rounded view of franchise law.
Kit: Absolutely. I agree. I think my background in that does so as well. I've got to experience a lot of just interesting situations, the normal ones where you know franchisee may be in default for for sending out. An advertisement without getting it approved by the franchisor beforehand.
I can provide. Provide that insight to help them understand what the franchisor is thinking, because this shouldn't be a relationship that has any contention. It should be symbiotic.
This is a business relationship like no other, where the franchisor doesn't make any money, and that's the franchisee does. So they want to do everything they can to help a franchisee be successful. It's not, it's not. It shouldn't be butting heads should say, Hey, let's let's work this out. Let's figure out your side, my side, and come together. And and one united goal.
So it's a it's a it's a different type of business. But you know, with with the franchise or in the franchisee, if you understand each other's position. You can really understand other business
Natalie Gold: If someone asked you, what does a franchise attorney do, at least on the side of the prospective franchisee, how would you answer that?
Kit: So what I do is, I spend probably 90% of my time doing FDD reviews. So my wife would probably say. that all I do is read all day.
But you know it is staying on top of things. So it's not just reviewing FDDs, it is staying on top of of the laws because they're constantly changing, and all the different States. And also, I am researching what's going on? Just temperature wise in terms of all the FDDs that I review.I'm looking for trends. There's some clauses that become more prevalent in certain times, and some that are less prevalent.
I am also tracking franchisees, concerns. You know, wondering what franchisees right now are are really thinking. And it's interesting.
I always ask a franchisee during my initial consultation what their fears or concerns are.
A significant amount that say, you know, 3 3basic things like liquidated damages. Spousal guarantee.
It's kind of these common questions because they don't know why they're in place, what they're what they're needed for. I walk them through that, and any fears or concerns they have.
Natalie Gold: I'm sure. Covid also had an effect as to what people's concerns are with royalties and and things like that. So that's and that's interesting.
Natalie Gold: Sometimes when people ask me about finding a franchise attorney, they wonder, do I need to find a franchise attorney near me. Can they work in any state?
Kit: Yes, so I get that frequently. You know. Oh, you're in Cincinnati, Ohio. and you know I get to talk to clients that are in in often, you know. Nice exotic locations. California, Florida, DC. You know someplace other than the middle of the United States. But anyway.
You do not need to hire a local attorney for this franchising is regulated by the FTC, then you have 14 registration states. But when we're ruining a contract like this, you don't need to have a bar registration in your particular state. I can review your contracts, and review and negotiate and do everything that you need me to do in in any state in the in the country. I can't cross the border in Canada, though.
Natalie Gold: What does that process look like? Let's say, someone contacts you. What's the next step?
Kit: Yes. So I've got a 3 step process very simple. So we set up initial consultation over Zoom. I want to look you eye to eye, and and and let you see and hear me. I think that's really important.
At 15 min initial consultation call where I ask your background. The candidates background and ask them what what led them to be interested in franchising and then go through and and ask them about what they like about franchising, the brands they've looked at, why, they're focused in on a particular brand right now.
And so they say, Hey, look! You know this is what I'm concerned about, and I say fantastic, I get it. I'll explain all that to you when I go through the your franchise document review and so then I then explain my background. Tell them about myself and my history and franchising, and from there we schedule a time to talk. That is my analysis review. That's one and a half hours over zoom again. And what I do in my analysis review is
I show my screen so you can see everything in front of you. And I show my highlights of of areas that I want to talk about areas of concern areas that other franchisees have been concerned about overall trends. Hey, you! You didn't think about about this, but I do want to draw your attention to this
and let you know. Hey, this is this for a reason, and this is that, and explain things.
And so that's my analysis review. And then afterwards actually have the AI note taking feature, I taking notes. So I'll send you a a summary of all the points that we discussed and and things that you need to follow up on potentially with the franchise or
so that's all included in my review.
And you know, franchisees really seem to value that because afterwards they say, " Oh, boy, I had no idea, you know. Thanks for taking an hour and a half to go through it."
I really do truly enjoy what I do. It doesn't seem like a job at sometimes.
Natalie Gold: Most people want to know. How much does a franchise attorney cost? How much should they be charging. Typically, is there a range?
Kit: Sure I don't don't really know. I haven't really done it done analysis of of that. But II think that you! You may find some franchise attorneys that will charge a $2,000 $3,000 for a flat fee review.
You know I did look at a time and and see what other competitors were doing, because I wanted to price myself below them. I want to offer a good service, but at a good value. Because I know that franchisees are are entering a time where they are going to be spending a lot of money. So I value that. And so I do want to make this so that it is cost efficient for them. That's why offer a flat fee of $1995.
Kit: They're they're pretty standard they're all
written similarly, and feel comfortable talking to them. Because they are going to be your guide through this, and you shouldn't feel uncomfortable talking to them.
You shouldn't be afraid to raise your hand and ask questions and and feel maybe perhaps not that smart in certain areas. Just say, hey, look! I don't know. I don't know what I don't know, and and I appreciate that. And II hold franchise these hands. I understand that at 1 point I was that when I left the prosecutors office I had no idea what an FDD was. No idea what a franchise agreement was, and would use those terms interchangeably, like everybody does until I figured out what it was, and and understood it all. But, you know, I think that my, my mom's a therapist, and so I feel like sometimes my job is also a a therapist, to help hold their hand, and let them know. Hey, look! This is normal. This is normal, you know, and and you don't lose all your rights. When you walk into this, the franchise agreement was written by them. So it's gonna favor them, of course.
But they need to have these protections in place to protect the system. You don't wanna have one rogue franchisee out there, you know, doing something wrong and affecting the se system, hurting 99 other franchisees. You wanna make sure the franchisor as the
mechanisms in place to prevent something like that from happening?
Natalie Gold: Besides asking, 'how much does a franchise attorney cost?' What other questions should people be asking when they're interviewing a franchise attorney?
Kit: They should definitely ask about experience. Ask the the attorney if if they've drafted an FDD if they've drafted a franchise agreement, if they have actually implemented a franchise agreement's terms.
I think you you get a certain level of understanding something by actually doing it.
Yes, you can study it in a wood-paneled, mahogany office. But it's it's totally different working for a franchise or and understanding that business mindset of of what they need to be doing and how they need to be protecting the brand, and how they need to be supporting you as a franchisee. What they need to be doing.
I know where we needed to improve, and when I see franchisors that need to improve, and they're addressing issues, I think, wow, that's that's a that's a great franchise system.
Because there are going to be a mistakes and missteps, especially with emerging brands. But you know it's it's the franchisors that that adapt and and and help their franchisees and and put them first and foremost that'll be successful.
Natalie Gold: Another question to ask when interviewing a franchise attorney is about turnaround. If you're going to Discovery Day, and they're telling you 2 weeks it might not align with what your goals are unless they're extremely experienced. Another thing I would ask is have they looked at that brand before?
Kit: That's always interesting to know, or what types of brands that they usually work with. Maybe. Yeah, I get that question about, have you looked at this brand before?
And sometimes I have, sometimes I have it. You know I've I've reviewed in the in the past 6 months at least 30 something brands
and and and so whether or not it's the first time or the tenth time
I provide the same attention and go through the document page by page.
For every FDD, so it's not. I don't have a sale, or like a template FDD. For a brand I look at all the time I look at yours the one they sent you, the one that you signed.
Kit: That's the highlighted version. So I literally go through that. And what's interesting is, I had a client who said, Oh, yeah, you've reviewed this brand multiple times. Fantastic, great. So they sent me the Fdd.
Kit: And I was looking through it, and I let them know, "Hey, did you know the FDD was just revised 2 days ago?".
They said, "No, no." so I said, "This is a new FDD, now, I mean, completely new." There weren't a whole lot of changes, and I highlighted that and was able to show them the the red line copy and do all that. But you know, it was one of those situations where that's why I look at the same FDD over and over again, just to make sure that I'm catching something and not missing anything.
Natalie Gold: Definitely like, based on the timeline is one factor you should really consider when selecting an attorney. If you're pacing for your discovery day, or they have a time like a signing date already set up for you. Sometimes it's just pedal to the metal.
Kit: Yes, yes, and and so with with the the timeline, too. Yeah, you know I have. A quick turnaround time I had. One client who was heading off to Discovery Day the next day.
And said, "Could you do basically same day?". And I was able to move some things around and and talk to them at like 8 o'clock at night and run through it.
So I understand that there are these, you know, time pressures. You know. You've got yeah training coming up. They've got discovery day coming up. They want to make sure they get into this brand before somebody else takes that territory. And so I'm able to accommodate that my turnaround time is is typically less than 3 days.
You should ask the attorney whether or not they have the the ability to do a review in in enough time for you to actually go to that next level.
Natalie Gold: Another comment. I get not so much a question, but a comment is: "Oh, my brother in law is an attorney. I'll just have him look it over", and I just sigh a little bit because you definitely need someone that's a franchise attorney.
Kit, how you would respond to someone saying that they just know an attorney?
Kit: Yes. Well, I mean I I've had multiple clients that that were attorneys.They were in different areas of law wills and trust.
One was in corporate litigation. They knew, hey, look, this is not my area.
Kit: You know. This is this is an area. That a a franchise lawyer should look at this. So and I've had some clients who've hired that uncle that was just a general attorney, or you know, somebody that specialized in another area. And I actually had that that client then call me back a week later and say, Hey, I talked to my uncle, and he really didn't understand this, I could tell he didn't. So
I'm gonna hire you, anyway. It's just always best to go with somebody that that knows the industry. You don't hire a cardiologist for brain surgery.Go to an attorney that specializes in what you need and you'll certainly be rewarded with you know, getting your questions answered. That's that's why you're you're hiring them.
Natalie Gold: Yeah, you don't want to be penny wise and dollar stupid. Not at all.
Natalie Gold: Any other advice you have for people that are exploring franchise. Are there certain things that you would say to look out for?
Kit: Well, you you'd you'd you'd mentioned timing just now, and and you know I get clients that ask. Well, should I go before? Should I do my review before discovery day?
I get that question a lot, and my recommendation is yes, do the review before Discovery Day, because my review will arm you with questions that you can ask face to face at Discovery day Founders day whatever they want to call it.
And ask those those questions that should be done face to face. I'm not necessarily these. These "I gotcha" questions.
Kit: But if is there there is something wrong, if there's something that doesn't seem right. Pull them aside and say, Hey, look
You know I did this review, and this is something that I have concern about, and just see how they ask or answer, and you know you'll you'll get some excellent feedback from that you'll you'll get to see how not only they they respond, but their overall demeanor and so I think that that that matters a lot when you are are gauging whether or not you want to enter in a business relationship with them.
Kit: So I do recommend that you go through the review before Discovery day.
But I certainly have franchisee clients that that hire me after discovery day. And that's more of just confirmation.
But it's vital. It's it's critical.
I've definitely have spotted errors in the franchise agreement. Where you know that that would have caused problems later on.
And so they then had a reissue that that that franchise agreement. Wait some days. And then execute. And you know. Otherwise there could have been again some issues. So that does happen. That's not often, of course. But it is good for for your peace of mind.
Kit: Because you are next ready to make that next decision, which is should I buy this and and and so it's it's it's critical to do it.
Kit: Either, before discovery, day after Discovery Day, you really absolutely should get an FDD review
Natalie Gold: 100%, I think, having that review done before. It's exactly what you mentioned, where you're able to see how they react with how their demeanor is. There's something to be said about looking at someone in in the whites of their eyes and seeing how you feel comfortable with their leadership, you know. Ask those questions, see how quickly they respond, or how they're responding
KitWhen when you're at Discovery Day or Founders Day again, the franchisors called a lot of different things.
Look at how they're interacting with other franchisees. Look at how the the Franchisors are interacting. The executive leadership team and their their staff are interacting with each other. Look at how they're interacting with the wait staff. Typically a year. Now you're at a restaurant or bar. You're some place where there are servers and and and busers and and people in the service industry. See how they're treating them.
No, that's that's another thing. Where I say, hey, look, you know, just always be watching and looking, and see if they they have similar values to you. And there are different ways that they can franchise. You know, the executive leadership team can express that
Kit: but those are just some of the few that I've experienced when I was, you know, on the franchise or side, and then representing franchisees. Now.
Natalie Gold: Are there any crazy stories where you caught something or something exciting that you could tell us?
Kit: I've had some pretty interesting stories. I've had to get the FBI involved in one. There was a guy in Canada that was essentially making some threats against me and and and some of the other staff. That was bizarre cause he really didn't he? I don't know he had issues with himself and and and other things, so that that was crazy cause I literally had to call the FBI and the Canadian police, the Mounties. That was bizarre.
Once a franchisee have called and said, I don't know how to deal with this. And you know, what can I do? You know, somebody coming into your location and basically asking for that product for free because they are going to be a billionaire. And they've got this amazing concept that's going to revolutionize the world. And they're thinking that you're actually going to give them a free membership because of this idea. I mean just really just kind of out there situations. But you know, it's variety is the spice of life. And that's what's what's so great about franchising, too, is you get to involve yourself in a lot of different areas of life. I mean, you just see all these different people.
Kit: So it's it's it's always been fun and and interesting, and kept me on my toes, for sure. But yeah, there's not one other particular instance that I can think of that I could probably disclose without you know, violating some sort of some sort of ethic.
Natalie Gold: Have you ever looked at an FDD, and just been like, "Oh, no."...
Kit: Yeah, absolutely. And what's what's great is is that or what's not? What's interesting?
Is the the few times I think it's been maybe 3 times probably the last year where I looked at an FDD. And I thought, oh, my gosh! And then I looked at the notes and and sure enough, that was a a candidate that was
going on this search without a consultant and they found this brand on a you know, some Google search. And I mean.
I'm looking at this like holy mackerel. This is a violation. This is a violation. This is a violation.
They are listing one executive or 2 executives with 2 years of experience and 1 million dollar investment. And I mean, I've seen some just crazy FDDs that were terrible. I'll definitely draw attention to that. I'm not one to tell the my clients, though whether or not they should buy. That's that's decision they should make on their own.
But I really, really had to bite my tongue when I did the reviews and not say, Hey, don't buy this. It's but I was definitely saying, Here's a red flag. Here's a red flag. Here's a red flag. Here's a red flag. Here's a something that I like. Here are 10 more red flags.
So hopefully you can ask some probing questions. Find out why they're, you know, such a mess.
I don't like seeing typos and grammatical mistakes. Those are certainly things that you know. If they're funny, I'll highlight but we're all human, you know. We make those mistakes. I certainly did with our with our documents.
Kit: But you know, and I'll highlight those to to help out another attorney. Hey? Look here, this doesn't really make sense. There are some where I'm thinking. Wow! What were they thinking when they wrote this? And who didn't catch this? I mean, this doesn't make any sense.
Kit: That's that's been funny. I kind of nerd out on that and and laugh to myself. And you know some of my clients like, why is that funny? I'm like, I sorry you just don't get it. But yeah, it's it's interesting. I do love reviewing FDDs, and that's one of the things that's great about to. You see some interesting ways that people frame their franchise, and how they operate things and and and really kind of tease out their personality.
From a 200-300 page document.
That's that's been actually fairly interesting.
Natalie Gold: I'm gonna throw you a curve ball question because I think it might be really interesting to hear your thoughts. Everyone's always interested in thee Item 19. Item 7. What are 3 things that you would say get overlooked in an FDD that should receive more attention?
Kit: I see my my clients tend to gloss over. Item 2, business experience. And when I'm looking through that you know, the the requirement is basically for the franchise, or to disclose an item to the business experience of those that are involved in the in the franchise sales process and operation of the franchise.
There are different ways to really parse that out and define it. So some franchisors will include Director of Training Director of Operations, and some will just have bare bones: The executive leadership team, CEO. President CFO, then a board member.
I'm always looking to see how the Franchisors are framing that and kind of framing their story. I want to see if, of course, if the founder's there and then look and see the different experiences that the executive leadership team have and what they've got in common. Who's bringing franchise or experience to the table? Who's being bringing process and procedure experience to the table.
Who's bringing that altogether? Who's training you? And sometimes that's all. Not not exactly highlighted there. I think that's a missed opportunity. Franchisors to not really frame their story appropriately. And so when I'm I'm doing my review. I do pay a close attention to that and look up. Bios go on Linkedin. You can find out a lot of information obviously online.
Another is if the franchise or is actually registered in California, I think it's it's it's great to do a search in California and see the previous marked copy of the FDD
beforehand. So it's not necessarily an item in the franchise, a disclosure document. It's actually comparing previous versions. To the version that you've got to see changes in the system to see what potential changes you may face in in the system. So that's something that I think is often overlooked.
Kit: I always highlight, item 7 and 19, and then just say, Hey, look! These are just estimates. And this is, you know, here's a disclaimer. Here's disclaimer, disclaimer, disclaimer.
You know, you really must validate on your own. That's super critical, super critical.
Natalie Gold: It can be a red flag depending on the story behind it. There's some type of retraction in a really mature franchise. People are getting older, they're retiring, they're selling. But if you see a lot of movement early on, that gets me a little bit nervous.
Kit: Yeah. Item 20. I believe it's table 4 typically has renewals. Terminations ceased operations for other reasons. And then there's a fourth column in there.
I look through all 4 columns. And just look and see if there are significant closures, terminations ceased operations for other reasons. And look at what year it is
Kit: you know, 2020, you'd see maybe see some closures in in 2021, I mean, I'm looking for a pattern then, and and trying to see. All right. Well have they righted that ship?
Kit: Have they offloaded the the, the poor, performing franchisees, and and fix their system, tweaked their model, made themselves leaner and meaner and more efficient and and sometimes that happens, and and and and Covid obviously did wreak havoc on a lot of of of franchises.
But you also saw a lot that that made it through, because there are franchises, you know. The franchisor really helped and support them.
I look at look at item 20 for sure and look at the outlets.
I also look at item, 14 trademarks.The patent and Trademark office just came out with a new site. It actually displays all their logos, and very easy to view format for all their marks. That's somewhat interesting to see marks that they filed, and why they filed for those. So you look at the goods and services.
When you're looking at the United States patent trademark office and may see different revenue streams where they want to put their logo on water bottles and T-shirts, and then they want to put it on branded some other product that they want to sell. And so then you can look at that and say, "Oh, wow! They really are trying to figure out other revenue streams for this brand." So that's another interesting search that I do is as part of my review as well. And and so, looking at item 14 trademarks is is something that I think, is also important and often overlooked.
Natalie Gold: I just want to say, Thank you, Kit, for hopping on here to answer our Franchise Law questions. If someone wants to book a call with you or schedule something. What's the best way to go about it?
Kit: Thank you very much. Send me an email! It's very simple. My name is Kit. My law firm is Kit franchise law. My email address is kit@kitfranchiselaw.com I would love to get you scheduled as soon as possible, and and walk you through the FDD.
Natalie Gold: Thank you.
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