{"id":9194,"date":"2018-08-13T15:52:34","date_gmt":"2018-08-13T19:52:34","guid":{"rendered":"https:\/\/www2.franchisegator.com\/articles\/?p=9194"},"modified":"2022-08-04T17:19:05","modified_gmt":"2022-08-04T21:19:05","slug":"quick-primer-fdd-12720","status":"publish","type":"post","link":"https:\/\/www.franchisegator.com\/articles\/quick-primer-fdd-12720\/","title":{"rendered":"A Quick Primer Inside the Franchise Disclosure Document (FDD)"},"content":{"rendered":"

Before a franchisee makes the decision to invest in a franchise, they must thoroughly read the Franchise Disclosure Document<\/a> (FDD). This document is typically provided to the franchisee by a franchisor once the franchisee has completed and submitted in their application. The FDD contains extensive details about the franchise system and franchisor\u2019s expectations \u2014 broken up into 23 separate parts. <\/p>\n

Don\u2019t let the length intimidate you. If you\u2019re serious about owning a franchise, it\u2019s critical that you meet with a legal professional to read and review the document together before proceeding. While we won\u2019t rehash in verbatim every single detail of the 23 parts, we have broken down each section into groups of five (or less) with key areas to pay attention to while reading the FDD.<\/p>\n

Items 1 \u2014 5<\/h2>\n

Items 1 and 2 provide further insight into the franchisor\u2019s background and experience, sharing details such as how long the franchisor has been in business, the history of the company and its competition, and professional information about executives behind the franchise system. Item 3 covers litigation history and discloses whether or not the franchisor or any executives have been convicted of felonies. Bankruptcy, if it occurred to the franchisor or its predecessor, is thoroughly reviewed in Item 4. <\/p>\n

Once you\u2019re caught up on the backgrounds behind the franchisor and executive team, Item 5 takes us in a different direction. This section covers initial and ongoing costs<\/a> for starting and operating a franchise. Some of these costs, like franchise fees, the franchisee may already be aware they must spend money on, but others such as the grand opening and training expenses may come as a bit of a surprise. Outside of the help of a legal professional, you may want to enlist the assistance of an accountant. They can help estimate expenses for your franchise business and determine a timeline for when you may expect to begin breaking even.<\/p>\n

Items 6 \u2014 10 <\/h2>\n

Recurring fees, known as \u201cother fees,\u201d are listed in Item 6 and Item 7 tackles the initial investment the franchisee must make in the franchise. If the franchisor has restricted the sources of products or services (like suppliers that you can and can\u2019t purchase products from), this will be covered in Item 8. <\/p>\n

Item 9 examines the obligations the franchisee has agreed to, typically displayed in a reference table<\/a> format. Item 10 summarizes any financing arrangements that the franchisor has offered to the franchisee and their terms and conditions.<\/p>\n

Items 11 \u2014 15<\/h2>\n

Any services, like training or advertising programs, that the franchisor plans to provide the franchisee are described in-depth in Item 11. If franchisees still have questions about the training programs, such as how long the sessions will last and the costs, they are encouraged to ask the franchisor once they\u2019re done reviewing the FDD. Item 12 describes whether or not the franchise has any exclusive territory and Items 13 and 14 provide further information into how the franchise\u2019s trademarks, copyrights, and patents may be used. Franchisees will find out in Item 15 if they are obligated to participate in the franchise\u2019s actual operation \u2014 that is, be a part of the day-to-day business.<\/p>\n

Items 16 \u2014 20<\/h2>\n

Further restrictions on what franchises may offer its customer base are outlined in Item 16. For those franchisees curious as to what renewal qualifications or terminations may look like for their franchise, this is detailed in Item 17 along with transfer and dispute resolutions. If your franchise decides to use a public figure, like a celebrity or influencer, to endorse the business the amount they are to be paid is covered in Item 18. Item 19 touches on unit financial performance of the franchise, but is not necessarily required information from the franchisor.<\/p>\n

Item 20 might not seem like much \u2014 the contact information and locations of existing franchises \u2014 but it is certainly important for franchisees. Before investing in a franchise, franchisees are encouraged to contact current and former franchisees and meet up together. Doing this gives them extra insight into what the business is like and if these franchisees have a solid relationship with their franchisor. That relationship \u2014 or lack of one \u2014 can make or break whether the franchisee purchases their franchise.<\/p>\n

Items 21 \u2014 23<\/h2>\n

As the FDD comes to a close, the final three items are primarily financial documents and signed agreements. Financial statements from the past three years are kept in Item 21. You may benefit greatly from having an accountant review these alongside you, as these statements will show evidence of the franchise\u2019s ability to grow over time. All agreements that franchisees are required to sign may be found in Item 22 (\u201cContracts\u201d). Lastly, Item 23 contains the finishing touch \u2014 the signed receipt from the franchisee stating that they received the Franchise Disclosure Document.<\/p>\n","protected":false},"excerpt":{"rendered":"

Before a franchisee makes the decision to invest in a franchise, they must thoroughly read the Franchise Disclosure Document (FDD). This document is typically provided to the franchisee by a franchisor once the franchisee has completed and submitted in their application. The FDD contains extensive details about the franchise system and franchisor\u2019s expectations \u2014 broken … A Quick Primer Inside the Franchise Disclosure Document (FDD)<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":9195,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,24],"tags":[],"class_list":["post-9194","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-starters","category-franchise-experts"],"yoast_head":"\nA Quick Primer Inside the Franchise Disclosure Document (FDD) - Franchising Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.franchisegator.com\/articles\/quick-primer-fdd-12720\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Quick Primer Inside the Franchise Disclosure Document (FDD) - 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