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Understanding the Franchise Disclosure Document (FDD)

Written by: Rick Bisio

Article Overview: This article provides a frame of reference to study the FDD further while coveri the primary topics discussed in the FDD. It also provides information on where to secure more detailed information on the FDD.

Understanding the Franchise Disclosure Document (FDD)

Until now, it’s been kind of exciting, hasn’t it? This whole ‘franchise education’ process? You’ve told your family and friends that you’re thinking of being your own boss, you’ve found a franchise that seems to fit your goals and desires, you’ve talked to existing franchisees … but now it’s time to read the Franchise Disclosure Document (FDD) and Franchise Agreement.

Ugh. It looks and feels big and heavy. Not to mention - legal. No fun. Scary even. Rest assured that most people do not look forward to reviewing legal documents. Your feelings are perfectly normal and healthy. What you don’t know is that the franchise disclosure document you hold in your hands is a lot friendlier than it looks. It is a standardized document, brimming with franchise information. Often you will read that the FDD is written to protect the franchisor; you should also know that it protects the franchisee by leveling the playing field. The franchisor is required to share franchise information in a clear, transparent fashion. In turn, all prospective franchisees clearly know their rights can be expected to meet the same standards.

So put yourself in a positive frame of mind and dive in. Give the FDD your full attention now rather than making assumptions that may turn out to be erroneous. You don’t want to count on using equipment you already own, or adding your wife’s special carrot cake to the menu, only to find out that it would violate the business model. Franchise systems work best when there are clear systems, standards and expectations. The value of your franchise is enhanced and the brand is strengthened when all franchisees offer consistently superior products and services.

The FDD covers every facet of the business, including:
1. What is covered in your franchise fee and initial investment.
2. Physical property requirements, such as the location, building, equipment and supplies.
3. A definition of the operating practices which protect the entire franchise system.
4. Initial and on-going training and assistance provided by the franchisor.
5. Whether advertising will be local or national and if the cost will be shared.
6. How royalties are calculated and paid.
7. Bookkeeping, accounting and reporting requirements.
8. The parameters of your protected territory.
9. More, much more

Pay special attention to territory. This is one area of the Franchise Agreement that is often negotiable. For more information on all the sections in the FDD and what to look for in each section, read Chapter 7 of The Educated Franchisee.

Studying the FDD and the Franchise Agreement is a critical part of your franchise education! Go over each section carefully to understand how each item will affect you. A good franchisor will spend whatever time necessary to answer all your questions regaridng the FDD. In the end, you might decide you can’t live with the terms. Best to learn that now! And remember – at this stage of the franchise investigation fear is normal. Let it push you to seek the information you need to make the right decision for you. Remember the saying by Rob Gilbert - 'It's OK to have butterflies in your stomach. Just get them to fly in formation.'

Related Articles
  Big Changes Coming in Franchise UFOC Meet the FDD
  Franchise Legislation in Canada
  E-Mailing the Franchise Disclosure Document to Prospective Franchisees
  Explaining the Differences Between the UFOC and the FDD
  Government Regulation of Franchises

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Related Forum Posts
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Non-Disclosure Agreement - How should I decide who to get to sign my Non-Disclosure Agreement or not? Is it worth having? I'm worried that people won't want to help if I make them sign the NDA.


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