If you have never explored the world of franchising, it could seem like a roller-coaster ride….a mix of ups and downs and some surprising turns. One phase of the franchise acquiring process is reviewing the FDD or the Franchise Disclosure Document, and if you are not familiar with it beforehand, it can be one of those surprising moments. It is a legal document that will explain just about everything there is to know about the particular franchise that you are considering. The FDD contains 23 sections, or “items” as they are referred to, and the document is required by the Federal Trade Commission. Depending on the franchise, it can be a rather lengthy document which is partially to blame for its intimidating effect. However, breaking it down, item by item, it proves to be an extremely insightful manuscript that will assist you in making that final decision. It will describe the good the bad and the ugly about the franchise, so you can go into this venture educated and with your eyes wide open….there should be no surprises down the road.
It helps that the FDD is written in plain English and not Legal-speak, so the average Joe can grasp it. Don’t confuse the FDD with the Franchise Agreement, which is the actual sales contract that governs the term of the franchise. The Franchise Agreement will contain more of the legal jargon.
It is required that a prospective franchisee receive the franchisor’s FDD at least 14 days before they are asked to sign any contract or pay any money to the franchisor. The prospective franchisee must sign the FDD acknowledging receipt of the document. One section of the FDD will list all current franchisees and their contact information. With this, you will want to call and talk to these franchisees and get the inside-scoop on the success of the franchise and how much they are supported by the franchisor, and other such information.
In closing, don’t be intimidated by the FDD. Instead, arm yourself with it and use it to your advantage. Knowledge is power and the information contained in an FDD is of high value to you at this stage in the process.
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