The Franchise Guide to Review Franchise Disclosure Document

By: Jason Rager - Franchise Consultant and a successful Multi-unit Franchisee

 

Purchasing a franchise implies reading, accomplishing, or signing of documents to know about the franchise company and to make the buying process properly legal for the protection of both the franchisor and the franchisee who are the principal parties involved in the process. What are these documents and does the franchisee really have to read the contents thereof? What are the risks associated with some of these documents? The franchise documents involve Franchise Disclosure Document (FDD), different agreements, and promissory notes.

Before anything else, if you are a prospective franchisee, it is imperative for you to refer to know what a Franchise Disclosure Document (FDD) is. Prior to FDD, there's this Uniform Franchise Offering Circular (UFOC). However, starting July 2008, the new Federal Trade Commission (FTC) franchise rule provides for the mandatory use of the FDD to replace UFOC. You need to know the contents of the FDD to gain enough knowledge relevant to your franchise investment decision.

What is FDD? This contains 23 required items with vital information about the franchise company including but not limited to the list of present franchise owners which you can very well utilize while you conduct your due diligence, a must before making a decision. Furthermore, there are very important facts which the franchisors usually opt not to disclose like relevant financial information and financial performance representations. These critical pieces of franchise information happen to be made optional by the franchise disclosure laws. For prospective franchisees, knowledge of the facts pertaining to the financial status and financial performance of the franchise company is very important prior to making a decision. Another essential point that you should put in mind is to be alert in distinguishing deceptive tactics to mislead you while you deal with the FDD. Be aware that the FDD registration is merely a manifestation of its submission and payment of a registration fee to an agency of the government. This should not be referred to as a guarantee that the franchise company has met certain specific standards to show profitability and success in the conduct of its business. Having considered all these things, you should now acknowledge that the key role of safeguarding your franchise investment greatly points at  you. Make everything clear to you so that you can make the right decision. Professional help from a lawyer and an accountant and a thorough FDD review would surely benefit you.