Basics of the Franchise Disclosure Document (FDD):

To ensure that franchises are giving prospective franchisees the proper amount of information needed to make an educated decision, the agency mandates that a Franchise Disclosure Document (FDD) be provided to the prospective franchisee no later than 14 days before any binding documents are signed.

(The 14-day period begins with the signing of a formal receipt. The receipt does not establish any obligation on your part, it simply acknowledges that you have received the FDD.)

The FDD is a comprehensive document with 23 sections and additional exhibits, which include contact information for current franchisees and financial statements for the franchisor. It should address most to all of the questions and concerns you have about the franchise operation you are considering becoming a part of.

In Brief, the FDD Will Supply You with Information About:

• The company’s history, and management structure.
• Legal status and any litigation history, including pending cases.
• Estimated fees for opening, operating, and terminating the franchise.
• Trademarks, patents, copyrights and other proprietary assets the franchisor has.
• Details of any financial assistance the franchisor offers to franchisees.
• Assistance the franchisor offers before and during the franchise agreement, including training and marketing.
• If there are territorial protection rights.
• Obligations and restrictions the franchisee will have during the relationship.
• Data on existing franchises, such as how many are currently operating, and how many have been opened, closed or transferred in the past year.

It is essential that you understand all sections covered in the FDD. A wise move is to have a lawyer experienced with franchise contracts review it with you. Ask your lawyer to explain anything you don’t understand.

In addition, though uniformity is a hallmark of franchising, there is sometimes room for negotiating the terms of the franchise agreement. The FDD can serve as a starting point for negotiating certain terms.

Remember, the franchise agreement is a legal contract, so don’t sign it before you have satisfactorily worked out any concerns with your franchisor. And knowing what concerns you may have personally with a franchise purchase begins with a thorough review of the FDD.