Why An FDD Should Be Your Guiding Beacon
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.
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. 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.
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. Regardless of the type, size or scope of a franchise opportunity, the FDD follows a strict format. FDD’s are uniform and consist of 23 specific items. Expect to see franchise fees, initial investment totals, trademarks, assigned territories, renewals, restrictions and advertising efforts.
The FDD strives to give the potential franchisee the Who, What, Where, When and Why so that he or she can make an informed decision. 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 have 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.
FranNet Bio: FranNet is North America’s most respected leader in matching individuals with franchise ownership opportunities. Founded in 1987, FranNet has more than 100 experienced consultants across the United States, Canada, Germany and the United Kingdom. FranNet uses a proprietary profiling and consultative process to determine a business model unique to each client’s goals, skill sets and interests, and has matched thousands of prospective business owners to rewarding small business franchise opportunities. Based in Louisville, Kentucky, FranNet has been recognized by Inc. magazine as one of the fastest growing private companies in America for the last five years.