Since 1978, Franchisors have been required to provide a Franchise Disclosure Document (FDD) to prospective Franchisees. This document gives a total overview of the company so that an informed decision can be made before entering a Franchise Agreement.
What’s Included in a Franchise Disclosure Document
Included in the document is in-depth information about the brand, its industry, how it has performed in the past, as well as predictions of future performance. It also lays out info on competition, demographics, and the other Franchisees who have invested in the brand.
The FDD also includes financial disclosures; a potential Franchisee will know exactly what it costs to get started, as well as on-going costs. Financial stats on company-owned outlets may also be included.
By law, the Franchisor must give the potential Franchisee the FDD at least 14 days before entering into an agreement. The document can also be requested earlier. The Franchisor cannot charge any type of fee for the FDD.
Since the FDD is a legal document (written by attorneys), it is highly suggested that anyone interested in a franchise retain an attorney to review it. A professional franchise consultant can help you connect with a franchise attorney.
The FDD is also a lengthy document. Usually between 100 and 200 pages, don’t expect to get through it in a day. After all, purchasing a franchised business is a big step, and patience is most definitely a virtue!
Sample FDD Table of Contents
- Item 1. The Franchisor and any Parents, Predecessors, and Affiliates
- Item 2. Business Experience
- Item 3. Litigation
- Item 4. Bankruptcy
- Item 5. Initial Fees
- Item 6. Other Fees
- Item 7. Estimated Initial Investment
- Item 8. Restrictions on Sources of Products and Services
- Item 9. Franchisee’s Obligations
- Item 10. Financing
- Item 11. Franchisor’s Assistance, Advertising, Computer Systems, and Training
- Item 12. Territory
- Item 13. Trademarks
- Item 14. Patents, Copyrights, and Proprietary Information
- Item 15. Obligation to Participate in the Actual Operation of the Franchise Business
- Item 16. Restrictions on What the Franchisee May Sell
- Item 17. Renewal, Termination, Transfer, and Dispute Resolution
- Item 18. Public Figures
- Item 19. Financial Performance Representations
- Item 20. Outlets and Franchisee Information
- Item 21. Financial Statements
- Item 22. Contracts
- Item 23. Receipt Confirmation
The Bottom Line on Franchise Disclosure Documents
Purchasing a franchise can be life-changing. You need to get all of the advice you can, and the FDD is a tool that can help you decide if this is the right move for you.
Franchise Matchmakers is a team of franchising professionals that are dedicated to helping people explore business ownership as a career path. Contact us at info@franchisematchmakers.com to find out more about franchising options that may suit you.
