If you’ve been reading up on franchises, then you know how important the Franchise Disclosure Document, also known as the FDD, is. Here’s the thing about the FDD, though. It is a long document. In most cases, you’re going to find that any FDD you get from a franchisor is going to be at least 150 pages long, if not longer.
When confronted with a document of that length, you may be wondering what you’re supposed to be looking for while you read it. That’s why we’re going to be reviewing the most important things in the FDD. With some idea as to what you’re getting into, you should be able to, at the very least, understand the broad strokes of what the FDD is attempting to convey.
Fees and Investment
Let’s get down to brass tacks, shall we? If you’re already enamored with the franchise opportunity, then you need to know how much it’s actually going to cost to get involved. This is something that will be covered by items five through seven in the FDD.
Item five is going to cover the initial startup fees that you’ll be responsible for when getting involved. Item six is going to cover other ongoing fees that you may – and probably will – be responsible for after you get started. Finally, item seven is going to explain how much it will cost to keep your business open for the first three months. With this final item, remember that it’s only an estimate, and that you should always have a cushion.
Pay close attention to item three in the FDD for information on litigation. You’ll want to know about and understand any litigation that the franchisor is facing or has faced in the past. You may not think that this litigation directly concerns you, but it could. If a major lawsuit is pending against the franchisor, this is something that could have a very direct effect on your bottom line.
When it comes to understanding what operating your franchise is going to be like, this is what you’ll want to pay the most attention to. Anything that you’re contractually obligated to do (what you’ll be responsible for) is going to be covered by item nine in the FDD. Make sure you read this part and then read it again. If you’re not comfortable with what your obligations and responsibilities will be, then it’s not the franchise opportunity for you.
The above three components are the ones that should receive your immediate attention; however, it’s important that you read the Franchise Disclosure Document cover to cover. As a matter of fact, it’s ideal that you not only read it, but that you have a franchise attorney read it as well, particularly if you’re thinking of signing up.
The Franchise Disclosure Document establishes what your life as a franchisee is going to be like. Make sure that you give it the attention it deserves.