Educational Video #5 – Franchise Disclosure Documents (FDDs)

My latest video is on “Understanding a Franchise Disclosure Document (FDD).”

What’s a Franchise Disclose Document? Learn more here, in just over three minutes.

View this video on YouTube. Find my YouTube channel with this and other important franchise-related videos here.

Kim Marinoff presents “Understanding a Franchise Disclosure Document (FDD),” including key areas to pay attention to.

Franchising in the U.S. is governed by FTC, or Federal Trade Commission.

The Federal Trade Commission oversees franchising in the U.S.
The FTC governs franchising and dictates the contents of the FDD (this website/business is not affiliated with the FTC)

Every franchisor must give every prospect a franchise disclosure document, which mirrors the franchise agreement and provides detailed information on many different areas of the franchise, its costs, and how it operates. The FDD has 23 templated sections, and each franchisor populates those templates with their own information.

A completed FDD can be as long as 200 or even 300 pages. At the end, you should find the actual franchise agreement. It’s important, as a prospective franchisee, that you understand the entire franchise disclosure document in its entirety.

Some particularly important sections of the FDD include:

Item 6: Which lists all ongoing costs/expenses to operate a franchise. That can include royalties, advertising costs, software, and more.

Item 7: Details all of the expected costs to get a franchise location open. It provides a range, with a low and high end, itemized.

Item 12: Here, the franchisor shares how it defines territory. That territory should be exclusive. They should also share details on how they define territories (for example, by populations), and what demographics they have considered in each territory to make that territory not just viable but valuable.

Item 19:  You will find financial information here, including the franchisor’s earnings claims. What kind of performance numbers are existing units reporting, what they are producing, and how are they doing that. Some FDDs don’t populate this section. That might be because the franchise is a startup, or they want you to be in touch directly with franchisees, and getting numbers from them.

Item 20: This section gives details on franchise outlets that have opened, terminated, and ceased ops. You will find information here on every franchisee, along with their contact information.

The FTC Advises:

“Before you invest in any franchise, get a copy of the franchisor’s Franchise Disclosure Document (FDD). Under the Franchise Rule enforced by the FTC, you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for — and get — a copy of the FDD once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s FDD before you spend any money to investigate the franchise offering. The franchisor may give you a copy of its FDD on paper, via email, through a web page or on a disc. The cover of the FDD must provide information about the available formats. Make sure you have a copy of the FDD in a format that is convenient for you, and keep a copy for reference.

Read each of the 23 numbered “Items” in the franchise disclosure document. Don’t be shy about asking for explanations, clarifications and answers to your questions before you invest.”

Here’s a link to the FTC’s page “A Consumer’s Guide to Buying a Franchise,” with detailed information on the franchise disclosure document.

They also have a useful PDF version here.

The complete franchise disclosure document includes these sections:

Franchisor’s Background (FDD Item 1)
Business Background (FDD Item 2)
Litigation History (FDD Item 3)
Bankruptcy (FDD Item 4)
Initial and Ongoing Costs (FDD Items 5-7)
Supplier, Territory and Customer Restrictions (FDD Items 8 and 12)
Franchisor’s Advertising and Training (FDD Item 11)
Renewal, Termination, Transfer and Dispute Resolution (FDD Item 17)
Financial Performance Representations (FDD Item 19)
Franchisee and Franchise System Information (FDD Item 20)
Financial Statements (FDD Item 21)

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Educational Video #3 – Questions to Ask a Existing Franchisees

What should you ask an existing franchisee?

This is Part 3 of my 11-part series of educational videos to teach you all about the franchise industry, and about working with a franchise consultant.

In just under four minutes, learn about the questions you mush ask existing franchisees when you are vetting a franchise opportunity.

Franchise education video 3 of 11, “Questions to Ask Existing Franchisees,” by Kim Marinoff.

Talking to existing franchisees is a critical step in the process of evaluating a franchise opportunity. I’ve honed my list of questions over the years, and they include some that you may not have thought of.

It’s important to understand the background of any franchisee you speak to. What was their background? What led them to this experience? What skills did they have, and how do their skills and experience compare to yours? Can the franchise training program help you fill in any gaps? Why did they chose this opportunity? Why did they pass on others?

Ensure you know about the training and support available to you. What is the biggest mistake they made and how can you learn from and avoid that?

How do you market your business? What are the biggest obstacles to success? What are their sales? What are expenses? What was ramp-up time? When did the business first break even? Did they hire a manager? Would you do this over again? Why or why not?Talking to existing franchisees is a critical step in the process of evaluating a franchise opportunity. I’ve honed my list of questions over the years, and they include some that you may not have thought of.

It’s important to understand the background of any franchisee you speak to. What was their background? What led them to this experience? What skills did they have, and how do their skills and experience compare to yours? Can the franchise training program help you fill in any gaps? Why did they chose this opportunity? Why did they pass on others?

Ensure you know about the training and support available to you. What is the biggest mistake they made and how can you learn from and avoid that?

How do you market your business? What are the biggest obstacles to success? What are their sales? What are expenses? What was ramp-up time? When did the business first break even? Did they hire a manager? Would you do this over again? Why or why not?

Get my complete list of Validation Questions to Ask Franchise Owners” at this link, as a PDF.

If you have questions, please comment here, or send them to me via email at kim <at> a2bfranchiseconsulting.com.

Learn more about me and my services, find valuable resources about franchising on this website, and check back here on my All About Franchising blog as I introduce the other eight videos in my educational series.

I’ll also be posting news here about my clients, news from the franchise world, address other industry topics, and I always welcome your comments and questions.

Thank you!

Smiles,

Kim Marinoff

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Educational Video #2 – Questions to Ask a Franchisor

Here are the important questions you must ask when evaluating a franchise.

Franchise education video 2 of 11, Questions to Ask a Franchisor, by Kim Marinoff.

This is Part 2, “Questions to Ask a Franchisor,” of my 11-video series on franchising. This series is designed to help you learn more about the franchise industry, and about every phase of working with a franchise consultant to select a franchise.

In three minutes, I lay out the questions you must ask a franchisor. This is a comprehensive list of questions I’ve developed over the years. I have made them available here on my website on my resources page.

Gather all the information you can and ask all the questions you can about corporate communciations, support, training, operations, marketing, the financial model, red flags in the franchise agreement, and the competition. How do they differentiate themselves? What territory are they selling? Is it exclusive? How is it defined?

What is the corporate culture? Competitive? Collaborative? Controlling? Creative?

What sort of capital do you need to have to open and operate?

I hope you enjoy the video and find my “Questions to Ask the Franchisor” resource useful. It will open or download as a Microsoft Word document.

Does it raise any questions for you? Send them to me (kim <at> a2bfranchiseconsulting.com) or comment here. I look forward to hearing from you.

Learn more about me and my services, find valuable resources about franchising on this website, and check back here on my All About Franchising blog as I introduce the other nine videos in my educational series.

I’ll also be posting news here about my clients, news from the franchise world, address other industry topics, and I always welcome your comments and questions.

Thank you!

Smiles,

Kim Marinoff

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Educational Video #1 – The Role of the Franchise Consultant

What does a franchise consultant do? Let me explain.

This is Part 1 of an 11-part series of educational videos I’ve created to help you learn more about the franchise industry, and about every phase of working with a franchise consultant to select a franchise.

It’s short – only 2:33 – and I hope you’ll find it informative.

Franchise education video 1 of 11, The Role of a Franchise Consultant, by Kim Marinoff.

What do I do? I offer a free consulting service to those considering investing in a franchise of their own. I get to know you, then look for opportunities that might be a good fit for you. Once we have a short list, I’m your advocate, helping you to thoroughly vet any given opportunity. I’m compensated from a franchise’s franchise fee. When I match you to an opportunity, they pay me a commission from that franchise fee.

If you have questions, please comment here, or send them to me via email at kim <at> a2bfranchiseconsulting.com.

Learn more about me and my services, find valuable resources about franchising on this website, and check back here on my All About Franchising blog as I introduce the other 10 videos in my educational series.

I’ll also be posting news here about my clients, news from the franchise world, address other industry topics, and I always welcome your comments and questions.

Thank you!

Smiles,

Kim Marinoff

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Welcome to All About Franchising!

Welcome to my Blog, All About Franchising!

I’m Kim Marinoff, and my business is A2B Franchise Consulting.

Check back here regularly. I will be creating and posting content about all aspects of the franchise world.

I’ll be introducing and posting links my 11 educational videos on franchising here in the coming weeks, and also embedding them on the Videos page here on my site, and on my YouTube channel.

I’ll also be looking to answer any questions you may have about the world of franchising, how to become a franchisee, what’s the best franchise for you, and more. Please send me your questions, and join the discussion by commenting on any post you may find here that is of interest.

Thank you!

Smiles,

Kim Marinoff

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