A franchise disclosure document (FDD) is a legal document that all U.S. franchises are required to provide to potential franchisees. FDDs are valuable tools that franchisees can use to determine the current state and outlook of the franchise before making a purchasing decision. Investing in a franchise opportunity is a big commitment, and as a potential franchisee, you want to know that the business has long-term viability.
However, FDDs also delve into the individual roles and responsibilities of both the franchisor and the franchisee, giving you a clear idea of what to expect as you step into business ownership. So if you’re interested in a franchise investment, here’s what you should expect to see in a franchise disclosure document.
What information is included in a franchise disclosure document?
FDDs can be long and complex, but before you commit, it’s important to go through the FDD carefully and make sure that you thoroughly understand the information and terms. These sections must be in every FDD, in this specific order, and cover everything from finances to legal issues to personal responsibilities.
- The franchisor and any parents, predecessors, and affiliates — A description of the company, its history, and how long it’s been in operation.
- Business experience — Biographical information and professional experience of the company’s executive officers and directors.
- Litigation — Details any current or former legal action taken against the company or its executives.
- Bankruptcy — Discloses any bankruptcies involving the franchise, its predecessors, or its management.
- Initial fees — Lays out the initial fees that the franchisee must pay, as well as any factors that may influence or change these fees.
- Other fees — Discloses any and all later or ongoing fees that the franchisee will be responsible for.
- Estimated initial investment — A complete breakdown and reference table of all fees that the franchisee must pay in order to establish their franchise location.
- Restrictions on sources of products and services — States where franchisees must / must not purchase supplies, products, and services. It also discloses any relationships or affiliations between the franchise and the required suppliers.
- Franchisee’s obligations — A reference table stating all of the franchisee’s obligations and where they can be found in the franchise agreement.
- Financing — States the terms and conditions of any financing offered by the franchisor.
- Franchisor’s assistance, advertising, computer systems, and training — Describes the assistance and resources that the franchisor will provide to the franchisee, both upfront and on an ongoing basis.
- Territory — This section is not applicable to all franchises, but it details any territorial or geographical restrictions that the business is subject to. For example, a sales franchisee may be limited to operations within the southwestern portion of the state, so as not to infringe on other franchisees’ customer bases.
- Trademarks — Provides information on any franchise trademarks, including graphics and names.
- Patents, copyrights, and proprietary information — Covers any other patents or copyrights that were not included in the trademarks section.
- Obligation to participate in the actual operation of the franchise business — Defines the franchisee’s required role in the business, i.e., whether they can act as a hands-off investor or if they must have a part in daily operations.
- Restrictions on what the franchisee may sell — Details any restrictions on what products and services the franchisee can offer.
- Renewal, termination, transfer, and dispute resolution — Covers the process of renewing or terminating the franchise agreement, as well as the franchisee’s rights and responsibilities in the event of a dispute between them and the franchisor.
- Public figures — Provides information and compensation details on any celebrities or public figures that the franchise uses to promote the business.
- Financial performance representations — While this section is optional, it can include projections or expectations for business performance.
- Outlets and franchisee information — Gives information on all existing franchise locations.
- Financial statements — Contains at least three years worth of the franchisor’s audited financial statements, including balance sheets, statements of operations, equity, and cash flows.
- Contracts — Covers all terms that the franchisee is required to commit to in the franchise agreement.
- Receipts — This section includes a place for the franchisee to sign, stating that they received a complete copy of the franchise disclosure document.
As you can see, FDDs can be lengthy, complicated documents that cover a lot of information, but they are also critical for evaluating whether or not a franchise will be a good investment. If you’re looking for a business opportunity in a rapidly growing industry, with a franchisor that will set you up for success, Right Hand Senior Care wants to hear from you.
We have franchise opportunities available for caring entrepreneurs that want to build their own profitable business — while making a real difference in their community.
So what are you waiting for? Get in touch today and change your future with a Right Hand Senior Care franchise.