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 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 mustask 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?
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.
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.
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.
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.