Episode Transcript
[00:00:00] Speaker A: Welcome to American wealth in Franchising and Kim Daly tv. I am your host, Kim Daly. I want to educate, motivate and inspire your business ownership journey by interviewing business leaders, coaches and exceptional franchisees to learn their valuable insights and strategies that we can apply to our own business ownership dreams. Now onto the show.
Welcome back to Create Wealth Through Franchising podcast and Kim Daily tv. Do I ever have a doozy of a show for you all? Today I have invited the man, the myth, the legend, my fast, friendly and fair franchise attorney friend, Houston Barnes. I want to talk specifically about the registration states, the need for them, why they come about, who these states think they're protecting. The because here's what happened to bring you all into the conversation. Every year, FDDs have to be refiled with the Federal Trade Commission. And the attorney will say this again in his own attorney legalese. Kim Daly is not the attorney, so don't sue me. I understand the need for the franchise disclosure document. I think it's fair. It protects both sides, the franchisee and the franchisor. But in addition to the federal filings, there are 14 states that have additional stage state filings. And here's where I lose it. These states can sometimes take as long as six months to push out the new fdd. So that means that if a candidate from one of those states comes to me at the wrong time of the year, I literally have to say, I'm sorry, but your dreams are on hold because of your state. They get mad at me, Houston, as if it's I'm the one saying I can't help make your dreams come true. It's your state state that's doing it. And this is what happened to me multiple times earlier this year as one FTD was going dark and we were now going into the dark period. And I was literally like, nothing I can do. I'll talk to you in September, October. I mean, we were talking back in March and April. It gave me the insight or the idea to invite you into my studio. So let's talk about this because I'm sure that some good meaning intentioned persons created these laws for some reason.
So let's talk about what the reason is and see if you can convince me. Okay, you got the mic. Houston Barnes, if you're looking for an.
[00:02:29] Speaker B: Argument, you've come to the right place, right? In our industry, there are two groups of people, some crossover. But if you're really good at what you do, you're either a franchisor attorney where all you do is work with franchisors or you're a franchisee attorney, where you work with franchisees. I. I am a franchisee only attorney, so 100% of my clients are people looking to get into or people who are getting into or are in franchising. Right. I do not do the franchisor side. So if you were to talk to a franchisor attorney, you know, these registration states, the extra work that goes into it, that's helping pay their legal bills. So they might have a little bit of different view on this than me. But I'm here to tell you that I am working with you, Kim. I am working with your clients. We want to get deals closed. If somebody wants to get into the wonderful world of franchising and make their dreams come true, that's what I'm here to do. Protect them, keep them safe, but do it in a timely manner. And doing stuff in a timely manner is not always an easy thing to do when you're following the legal rules. Let's go to Franchising 101. First day of franchise law. Here, franchising is regulated from the very top, from the Federal Trade Commission. And the Federal Trade Commission says, if you're a franchisor in the United States of America and you want to go sell a franchise to somebody, you have to give them a franchise disclosure document. And it has standardized items in the front, it has a copy of your franchise agreement in the middle, and then it has a bunch of attachments, some that you're required to put in there, some you're not. So no matter where you are in the country, you are required to receive a franchise disclosure document. And that thing gets updated every year. This is great, right? Because every single time you get or looking at a franchise, you know what information has to be in there. The franchisor has to disclose all these things. And this is great for the consumer. It's great for the franchisor. I think everyone wins because of that. But everyone here watching lives in one of three states. You live in a state that has no registration requirement, where when the franchisor wants to sell you something, they just send you the fdd. You live in a state where there's a registration requirement, where all you have to do is just send in your franchise disclosure document as a franchisor, send it in, pay a nominal fee, and it's registered in that state. And then we get to your favorite states, Kim, which are the filing states.
So what happens with a franchise disclosure document? You have to come up with a new one every Year. You have to update it every single year. That's what the FTC says. Some states every year make you then file it with the state. They review your franchise disclosure document. They'll tell you if any changes are needed, which doesn't happen hardly at all, but they'll tell you if there are any changes needed. And then once they approve your fdd, that is when you can sell a franchise in that state. Now here's the politicians we do not want fly by night franchisors coming here. We want to protect the consumer and in this case the consumer is the franchisee. We want to protect you. We want to make sure that the information they're giving you is accurate, that it complies with state law, and we want to protect you.
Well, guess what? I don't think it's really protecting the franchisee. Is it asking if it's a good investment?
No. Is it going through and necessarily checking if everything in there is accurate? No. What it's doing is checking to see if that franchisor comports with that state's legal requirements. That's it. We're paying staff at these agencies to do it. There are filing fees, there are attorneys that take it to happen.
And to your point, you go to a state like California that is just buried in bureaucracy in so many areas and it could be months and months and months for you to submit your fdd, just for them to six months later come back say, okay, great, you can move forward with that, right?
[00:06:45] Speaker A: Do you hear that guys? It's not just me saying it, I'm not joking. It's six months in a certain state and during that period you cannot invest your money in a franchise.
It's totally crazy to me that lawmakers in a state who want tax paying business owners who want to create jobs in their state through these franchises, who create jobs and you know, have employees, why would they take so long to, to get through this process to where literally when the FDD comes out? Now we have six months to work with the new FDD before the whole process starts all over again.
How is that defended?
[00:07:30] Speaker B: It's very hard for some politicians to get up and say, you know what, we're cutting the regulations. There are some states or some politicians becoming more popular these days to say we're cutting through the red tape and we are not going to have this document bogged down for six months. We're going to let the consumer decide and we're going to let the consumer move forward. You know, a lot of politicians, if something goes wrong, that doesn't look good for them. So that politician wants to get up there and say we're protecting you, we are looking out for you and we are going to make sure that everyone who comes into our state, everyone who does business in this state, that they are doing it correctly, that you are protected, that nothing bad is going to happen to you. Oh, and guess what, we have a state budget of X number of dollars a year and this is helping to fund that budget. So it's also a line item of income for them. But really what you need is you need the political power of people to stand up and say, you know what, let's cut the red tape, give the power back to the consumer. And what's frustrating here is you already have a standardized document. In a past life I was very involved in politics and I went to breakfast one morning with a United States senator. So this is one of the most 100 most powerful people in America.
