In The News
Why an FDD Should Be Your Guiding Beacon
May 31, 2013
With over 3,000 choices of franchise concepts in the marketplace today, your options for owning your own business are limitless. But not all franchises are created equally. So, how will you be able to gain the necessary piece of mind that the opportunity you intend to pursue is legitimate?
Say hello to the Franchise Disclosure Document, or FDD for short. Quite simply, it’s a legal document mandated by the Federal Trade Commission (FTC) designed to assist the potential franchisee through the due diligence process. The FDD offers incredible access and insight into a franchise and its operations. Every legitimate franchise must produce one. If a company doesn’t, remove yourself from discussions as quickly as possible. At its core, the FDD removes any emotion from the process. It’s required to be presented to you and once it’s been produced, spend careful and considerable time reviewing it.
Under FTC guidelines, the FDD must be presented to the potential buyer in the pre-sales process no less than 10-14 days prior to entering a contract or paying any amount of money for a franchise. And as you’ll see, it may be the single most important document you’ll review during the entire procedure.
The required FDD paperwork includes the term “Disclosure” right in the title…and for good reason. Regardless of the type, size or scope of a franchise opportunity, the FDD follows a strict format. A franchise FDD is, in essence, a road map for reviewing the full opportunity’s legitimacy in the business world. FDD’s are uniform and consist of 23 specific items. You would expect that subjects such as franchise fees, initial investment totals and trademarks are covered. But the beauty of the FDD is in the depth of its contents. You’ll also read about assigned territories, renewals, restrictions and advertising efforts.
The FDD strives to give the potential franchisee the Who, What, Where, When and Why (or the five Ws) so that he or she can make the most informed decision possible before buying a business. Did you know that the FDD also includes a lengthy section concerning financial performance and representation? Sufficed to say, you’d probably like to know how much income you can expect prior to creating a potential balance sheet of profit and loss—and the FDD will have this subject covered in detail.
You also have a right to know if there is any pending litigation filed against a particular franchise group. This section includes even the most minute of situations, but also extends to the franchise’s executive officers. Of particular interest to most potential buyers are the specific territories offered. The FDD lets users know what’s open and what’s closed. And this is information you’ll need to know if you had the notion of opening a business right in your own backyard.
Perhaps best of all, the FDD should be perceived as expertly outlining each and all obligations necessary to enter into a business agreement with a franchise. You have every right to make the most informed decision possible when selecting a potential franchise opportunity. Under the Federal Trade Commission’s guidelines, the Franchise Disclosure Document is there to safeguard your journey. It accomplishes this goal by laying bare all of the requisite information necessary to make the best possible determinations when going into business for oneself.
Remember, the Franchise Disclosure Document is there to protect you, the consumer. In the most specific way, you’ll find out what is required of you and what is required of the franchise. That’s why it should be your own personal guiding beacon as you investigate an opportunity.
Do you feel that you’re ready to get started? If this article has inspired you to investigate an FDD as the best way to learn about starting your own business, perhaps it’s time for a free consultation with a qualified and experienced franchise consultant. As it turns out, FranNet is just the place! As a franchise consultant company with a great track record of assisting individuals on their path to business ownership, make arrangements to speak with one of our representatives today.
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