What It Is and What You Should Know
Opening any kind of business obviously comes with a significant amount of paperwork and franchises are no different. However, much of the paperwork associated with buying a franchise is for your benefit as a franchisee. Take for example the franchise disclosure document. This potentially lengthy document offers a lot of valuable information about the franchise that you’re interested in purchasing. Carefully reviewing the FDD can point out a variety of points that you either didn’t realize or may not have thought about when you decided you wanted to open your own franchise business. So, why is an FDD so important? Let’s find out.
What Is an FDD?
In simple terms, a franchise disclosure document (FDD) is a legal document which is given to franchisees by the franchise they wish to purchase in the pre-sale disclosure process. It typically contains information that is essential for potential franchisees to know about before making such a significant investment in the franchise. The FDD used to be called the uniform franchise offering circular before the Federal Trade Commission revised it in 2007. In 1979, the FTC created a rule called The Franchise Rule. This rule notes who has to prepare the FDD for the franchise, who has to give it to potential franchisees, how franchisees receive it, and how long franchisees have to review the disclosures and request any changes to the standard franchise agreement. Under this rule, the franchisee must have at least 14 days once they receive the FDD to review it before they’re asked to finalize a contract or pay any money to the franchise. Because the FDD is very detailed and contains a lot of information, you must be sure to review it carefully before finalizing your franchise contract.
What Should It Include?
While the FDD provides a lot of information, there are things that are typically included for the franchisee to review. From general information about the franchise and any partners, predecessors, or affiliates it has to the franchise’s history of litigation, there’s lots to review. Here’s what you’ll typically find in an FDD which can prove to be valuable information:
- An overview of the executive team and experience.
- Info on partners and affiliates or predecessors.
- Any bankruptcy filings.
- The franchise’s litigation history.
- The franchise fee.
- Estimated total investment.
- Additional costs for things like training, permits, travel, etc.
- Vendor restrictions.
- Trademarks, patents, copyrights, and proprietary info.
- Restricted territories.
- Goods and services you’ll be allowed to offer as a franchisee.
- Previous financial performance of the franchise as well as current financial status and statements.
- Legal contracts.
- List of all current and former franchisees and reasons any former franchisees are no longer affiliated with the franchise.
- Acknowledgement of receipt.
Making sure to review and accept all the information provided in the franchise disclosure document is key to moving the process forward. If there are things you don’t agree with, you do have the option to address them with the franchise, but it isn’t guaranteed that any changes would be made. This document ensures that everyone is on the same page before any agreements are signed. As an example, the K9 Resorts FDD is made up of 23 items and the standard franchise agreement which you are required to review and sign before proceeding with the franchise process.
What Should You Look For?
Obviously, you’ll want to read through the entire franchise disclosure document, but there are a few things you’ll need to pay very close attention to. While they might be in varying order throughout the FDD, depending on the specific franchise, the things you want to find and review carefully are:
- The outline of the franchise fees, initial investment, and other deposits. This part is potentially the most important to potential franchisees because it lays out true financial expectations and gives a full picture of how much it’s going to cost you upfront and later in the business.
- Current or past litigation and bankruptcy. Carefully review any information provided in this section as it could raise a red flag. Information here can alert you to problems with the company’s overall systems or with the franchisor and franchisees.
- Background, structure, and industry overview. The information in this section of the FDD will give you a general view of how the franchise has grown, how it’s organized, and what the values of it are.
- The list of current and former franchisees. In this section you’ll get details about franchise growth and turnover. You also may have the ability to contact current franchisees to talk about their experience and accurately vet the franchise. Additionally, a high turnover rate or lack of growth may be reasons for pause.
The amount of information in a franchise disclosure document can be overwhelming and the document itself might be an intimidating step to owning a franchise, but it’s crucial that you explore it thoroughly. With a good FDD, you can make an informed decision on whether or not you want to buy into a specific franchise.
K9 Resorts is a proven franchise. Our cutting-edge processes and dedication to the care of pets puts us above others in the field. We’ve taken the time to focus on what works best for pets and pet parents and ensures a quality experience every time. This includes proprietary systems, best-in-class training, and top-quality facilities. If you’ve always dreamed of owning your own pet care business, now’s the time to contact us to find out more about our FDD and franchising process.
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