One of the things that is required when franchising your company is the franchise disclosure document, which is mandated by the Federal Trade Commission. The document is meant to provide franchisees with an accurate idea of what the potential risks and benefits of investing are, and is typically sent out at least two weeks before a franchise agreement is signed. The following are the items that all franchise disclosure documents must contain:
Description of the franchise
Here you need to provide a history of your business, as well as a description of any affiliates, predecessors or parent companies.
Your business experience
This includes both biographical and professional information about you and your executive team. This section should help make potential franchisees confident in your ability to oversee a franchise.
Current or past litigation
If you, your company or any of the company’s principals or directors are facing litigation or have faced litigation in the past, you must disclose it.
History of bankruptcy
You must disclose if you, your company or any officers or directors have filed for bankruptcy in the past.
Fees required to run a franchise
This includes the franchise fees, as well as all other fees and expenses required to open and operate a franchise within the first three months.
Restrictions regarding product and service sources
You’ll want to make sure that what your franchisee is selling meets your standards — so list your designated suppliers.
Obligations of the franchisee
These are contractual obligations that should be written in a list.
This is only if you are offering the franchisee assistance with financing through a lending program.
Your support services
This includes how you will assist the franchisee, from advertising to computer systems to training.
This ensures that the franchisee won’t have to compete with another one of your franchises in the same territory.
Copyrights and proprietary information
You should list all of your trademarks and patents to ensure franchisees that your company and its products are unique and legitimate.
You must state whether you want your franchisees to run their franchise themselves, or whether they can be passive owners by hiring others to manage their operations.
Set restrictions on the products franchisees can sell, or else they may begin selling things that you do not want to be representative of your brand.
Renewal and termination terms
This should describe the terms of renewal and termination, as well as how and where disputes will be resolved.
This is only needed if the franchisee is buying into less than one percent of your franchise system and you use public figures in your advertising.
Financial performance representations
Although you don’t have to state how much money your current franchises are making, you will have to state that you choose not to make such a claim if you aren’t willing to disclose their earnings.
Franchise outlet information
This information is conveyed in charts that show how many franchises were opened, transferred and closed within the last three years.
These include profit and loss statements and balance sheets.
This includes all of the agreements that the franchisee has to sign.
Franchisees must sign a receipt confirming they received the franchise disclosure document.
That’s a lot of information that needs to be included in a franchise disclosure document. Because the document can end up being hundreds of pages long, it’s important that you get assistance with its creation. Here at Accurate Franchising, we can help you produce a franchise disclosure document, as well as register your franchise.