Understanding the Franchise Disclosure Document (FDD)
So you are researching buying a franchise. By law the franchisor must send you their FDD (Franchise Disclosure Documents) before you can invest. The FDD has a huge amount of information that will help you make an informed decision.
There is a disclosure waiting period between when you sign for the FDD and when you can actually buy the franchise which is a federally mandated 14 days. So even if you wanted to you can't invest for 14 days after receiving and signing for the Franchise Disclosure Documents. There is also a 7 day period for the franchise agreements - so most franchises will send both at the same time and have the waiting periods run concurrently.
When the franchisor finally agrees to send you the documents You think "Great, I will get everything I need to know in this document" but you receive it and it is a daunting 400 pages long!! You may consider the document is too complex and you put it away maybe to look at it "tomorrow, or worse, to just rely on what you have been told by the franchisor.
Well reading an FDD is actually not that hard, and there is some fantastic information that will really help you learn a lot. Now please make note I always recommend you run the FDD and the agreement by a competent FRANCHISE lawyer. and why I stress franchise lawyer is that a non specialist lawyer who doesn't have experience in these agreements will often consider it to be overly restrictive. They often don't understand the very nature of a franchise is highly regulated right down to how many pickles your employees put on the Big Mac. That's just the nature of franchising
What we are suggesting is once you understand how to read the FDD, you can then determine whether it is even worth your time and money to pay a lawyer to look at it. If the Disclosure Document is not to your liking and you choose not to proceed with the franchise you can save money on a lawyer.
I won't go into any great detail today this will be a crash course on how to quickly hone in on the important parts of an FDD.
The first page will be a general overview of the franchise and investment amounts. Most of this you will already know if you have been working with the franchisor.
The Table of Contents page outlines the 23 items of the FDD. This is a standardized format and every FDD will have exactly the same table of contents and 23 items. Let's go over them one by one.
Item 1. The Franchisor and Any Parents, Predecessors, and Affiliates. This will be a few paragraphs regarding the business, date of incorporation, is it owned or controlled by other entities? Where is it's principle place of business, formal operating name and other details. They will also list details about the franchise, applicable regulations and potential competition. This is great data as it will provide insight into who your competition might be. Don't let the legal type wording scare you off.... the FDD is created in such a way it can be jarring after hearing all the smooth sales talk. The reality is typically somewhere between the sales person and the FDD. So item one - we have learned about the franchise history and some details of the compettion.
Item 2. Business Experience. This will outline all of the people involved in the franchise. very helpful and a small tip - Google the names of the people in the FDD. See what comes up. Did they come from other failed franchises? Have they been involved in lawsuits. Check out their Linkedin profiles. management of a franchise system is very important so you should feel confident in the franchise itself as well as the people running it.
Item 3. Litigation. Has the franchise sued anyone or have they been sued? Its not the end of the world if you see lawsuits. Franchising is a very litigious industry. But - if you see several instances of franchisees suing for reasons of fraud, misrepresentation, or breech of contract you may want to look elsewhere, or at minimum up your due diligence.....
continued at : www.franchise.city/franchise-d...
Пікірлер: 18
Very underrated channel. Thank you for all the useful info, Robert. I've been binge watching all of your videos :). You will definitely have my business once I am set on opening my first franchise. Until then, I will be doing my due diligence. Thanks!
@FranchiseCityOnline
6 жыл бұрын
Thanks for the kind words!
thanks a lot for this amazing video. this is what I have always wanted to know about the process of buying franchises.
@FranchiseCityOnline
6 жыл бұрын
Thanks for the comment!
Did you see the movie "The founder"? What did you think of it?
@FranchiseCityOnline
5 жыл бұрын
I have not - but I hear it is good. I'll make a point to check it out. Thanks!
Love your information. Absolutely informative. What do you think about the franchise TREAD CONNECTION?
@FranchiseCityOnline
4 жыл бұрын
Thank you for watching. Every situation is different, depending on your local demographic, operational abilities, business goals it could be the best, or worst franchise. Our service is free and can help to find the best option for a particular situation. www.franchise.city/our-services
The franchisor sent me the franchise agreement without even letting me know the existence of FDD. I did not sign it, I asked them to provide me the FDD, they claimed that there is no such thing as FDD, and just brush it off. What can I do?
@FranchiseCityOnline
5 жыл бұрын
Work with a qualified broker or consultant like Franchise City! If you are working on your own however, and the company is a franchise in the USA and selling franchises without providing an FDD they are likely in violation of law. You can report them to the FTC www.ftc.gov/tips-advice/business-center/guidance/consumers-guide-buying-franchise 1-877-FTC-HELP (1-877-382-4357) And here is their video link outlining specifically on how to file a complaint www.consumer.ftc.gov/media/video-0054-how-file-complaint . Thanks for the comment.
hello dear I'm reading the FDD of a travel franchise and by following the explanation you mentioned below this video the point number 17 Renewal, Termination, Transfer, and Dispute Resolution. specially the topic of operating another franchise through and after the end of the franchise agreement, I found this phrase: non-competition covenants during the term of the franchise = no involvement with competing business wherever located. does it mean the franchisee must not own, operate another travel franchise? or any franchise different from the travel franchise he's working with? thanks
@FranchiseCityOnline
6 жыл бұрын
Thanks for the question. The key term is no involvement with "competing" franchises. I would interpret that as travel or travel related businesses and you should be permitted to operate other businesses that are non-travel related. As always I would suggest you consult an attorney and clarify your limitations with the franchise directly to be absolutely certain.
@alfarukaliraqi8019
6 жыл бұрын
thanks a lot
I want to franchise my restaurant and how much it will cost to create FDD? and how am I going to find the lawyers for FDD?
@FranchiseCityOnline
2 жыл бұрын
Most concepts use a development company (franchise marketing systems, ifranchisegroup) to get them through the process. You can do it on your own, but there is a lot more to it than most people think. To find just a lawyer you can try AVVO - just search for franchise specialists and those who do FDD's. Realistically most people suggest you have no less than $50k to dedicate to the venture, lawyer would charge $5k-$10k depending on how much time they have to dedicate. If you need anything else feel free to reach out.
Initial franchise fees: $50000 Renewal of franchise : 50% of intial franchise fees at 5 years... is it reasonable for a beauty bar franchise ?
@FranchiseCityOnline
4 жыл бұрын
comparatively, yes that is rather high for such a short term, but it depends on the value you receive. A $20,000 FF with $5k renewal in 10 years is too high if you don't receive any benefits. I would be more concerned if the franchise is the most profitable option for my situation. Salons are typically not huge moneymakers - here is an overview of several industries: kzread.info/dash/bejne/lHyjx9yBodmzmqw.html Thank you for your question
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