Anything that makes the process of starting a franchise easier is most certainly welcome for the many prospective franchisees out there examining opportunities and lengthy Franchise Disclosure Documents. The research process can be full of complexity and for those ready to take on an interdependent career—that fine dance of give and take between franchisors and franchisees—simplification is a friend.
The NASAA (North American Securities Administrators Association) has this in mind by highlighting the importance of clearer terminology concerning franchisees of different kinds, namely area developers vs. area representatives vs. single unit operators. Though the definition of a single unit developer is often more simply conveyed, area development and area representation are not always as clear. They are each alternative franchise investment strategies that allow for expansion into territories while managing multiple locations. Uncertainty concerning the definition of these two types of franchise agreements can occur and overlap in terminology has also been common which further confuses their meanings.
As such, this shift in terminology will help to clarify to potential incoming franchisees the specific role of multi-unit franchise partners in relation to their unique responsibilities and privileges. Additionally, where franchisors are required to register with state authorities, the FDD agreement for single unit franchisees and area representatives must now be separate, which will require a separate registration as well. The emphasis on uniformity is one that can help to streamline agreements between franchisors and franchisees while promoting FDD terminology that is in harmony across the country.
Depending on the business concept and the particular demands of the franchise, either area development or area representation may be more desirable based on the goals of the investor. Though both require a commitment covering a larger territory than single units, area representatives handle recruitment, training, and different support services for new unit developers in the territory while area developers are actually operating more than one location as part of their agreement with the franchisor.
To find out more about this newly adopted terminology shift in its entirety, click here.