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Everything You Need To Know About Franchise Disclosure Documents

In the beginning phases of becoming a franchise owner, there are many moving parts to the process. Once you have decided on a potential franchise that is right for you, you will need to obtain a Franchise Disclosure Document (FDD). This document outlines crucial information to know about the company and your relationship as a franchisee. Before signing on the dotted line, here are a few things to look for in a FDD:

Company information

Before deciding to purchase a franchise, finding out about the history of the company and its executive team are important. A FDD should include a history and description of the franchisor and any parent companies under which they operate. It also needs to contain biographical information about the company executives, as well as a section listing other franchisees along with their contact information, which you will want when you are further along in discovery.

Legalities

The legalities involved with becoming a franchise owner can be confusing, especially for first-time business owners. So you can get a better understanding of the company’s financial standings, a FDD should disclose any litigations filed against the company and bankruptcies, as well as audited financial statements from the past three years. If any of this information is missing, you will want to inquire about the financial health of the parent company before making a decision.

Initial Cost

During the discovery process, investment fees and startup costs may play a significant role in your decision. While these fees are almost always less expensive than starting a similar business on your own, you need to know if you can afford to run your own franchise. All of the initial fees, recurring fees and all expenses required from the franchisee should be clearly outlined in a FDD. If there is a financing agreement in place between the franchisor and franchisee, this information should also be clearly defined in the FDD.

Obligations

Just like any business deal, a franchisor and franchisee both have obligations that are outlined in a FDD. The franchisor should include information about any assistance, advertising, proprietary software, training and assigned territory that they will provide to the franchisee. There will also be a section in the FDD that outlines the terms and agreements including the obligation to participate in the operation of the franchise business by the franchisee.

Trademarks and Copyrights

As a franchisee, you are your own business owner, but a franchise is required to provide information concerning how a franchisee can use the brand trademarks and trade names, patents and copyrights within the FDD.

Understanding a FDD

If you are feeling overwhelmed with the process or need assistance understanding any of the information contained in a FDD, Franchise Business Source is an experienced and trusted advisor. Throughout our consultation process, we will answer any questions you might have before making the decision to become a franchise owner. Feel free to contact us or call us at 614-768-3884 to schedule your free consultation today!

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