Once you decide to open a franchise, you have to go through many steps to get it started. First, there is the hard assessment to actually determine whether franchising is right for your business, but then comes the harder part of creating a business model, writing training manuals, finding the right marketing techniques, and drafting a Franchise Disclosure Document (FDD).
Franchise Disclosure Documents are a legal requirement for franchises, and they must be detailed so potential franchisees know exactly what they are getting when they make an investment. This document is designed only to help franchisors in the long run, and they must go in-depth beyond surface-level detail.
At Accurate Franchising, Inc., we have perfected the art of drafting each individual FDD to cater to the direct needs of the franchise while also making sure all bases are covered if a problem should ever arise. Here is a simple guide to how the Franchise Disclosure Document works and why you need one.
Do I Need a Franchise Disclosure Document to Franchise My Business?
Yes, every franchise must have a Franchise Disclosure Document. The FDD is a legal document that prospective franchisees obtain with all the information they need to know before they invest in a franchise. According to Entrepreneur Magazine, it was originally created years ago after prospects would invest in franchises without necessary information and would ultimately fail. The FDD is a means to protect franchise prospects who want to make sure they are investing in the right opportunity. Therefore, the FDD is read very carefully and legally must contain specific information across the several sections. Additionally, without sufficient further detail, a poorly-constructed FDD might even cost the franchisor a potential franchisee’s investment. It may sound overwhelming, but with the help of a franchising consulting firm like Accurate Franchising, Inc., the FDD will have all the data compiled in a comprehensive way so prospects know exactly how great your brand is.
What Does a Franchise Disclosure Document Consist Of?
The FDD breaks down all the components and costs of opening one of your franchises. Potential franchisees want to know exactly what they are investing in, so it is very important that the points outlined in the FDD cover all the bases. Overall, the FDD should contain a total of 23 items that are all explained in detail for the prospect to read. The 23 items include the following:
- The Franchisor and Any Parents, Predecessors, and Affiliates
- Business Experience
- Litigation
- Bankruptcy
- Initial Fees
- Other Fees
- Estimated Initial Investment
- Restrictions on Sources of Products and Services
- Franchisee’s Obligations
- Financing
- Franchisor’s Assistance, Advertising, Computer Systems, and Training
- Territory
- Trademarks
- Patents, Copyrights, and Proprietary Information
- Obligation to Participate in the Actual Operation of the Franchise Business
- Restrictions on What the Franchisee May Sell
- Renewal, Termination, Transfer, and Dispute Resolution
- Public Figures
- Financial Performance Representations
- Outlets and Franchisee Information
- Financial Statements
- Contracts
- Receipts
A franchisor must give a prospective franchisee the FDD 14 days prior to collecting any money or binding signatures toward a franchise agreement, which gives enough time for the prospect to learn more about the brand, but not too much time as to delay the process of them opening their franchise.
How Do I Create a Franchise Disclosure Document?
You could create one for your franchise on your own, but considering the importance that it has to your brand and growing your franchise, having the help of a franchise consultant can only help. One of the many services that Accurate Franchising offers to help franchisors is FDD assistance. FDDs are a critical and mandatory part of becoming a franchise, and if you want to answer the question “How can I franchise my business?” you must have a thorough Franchise Disclosure Document for prospective franchisees.
Accurate Franchising, Inc. has resources and services to help educate would-be franchisors about the Franchise Disclosure Document (FDD) and all its necessary components. For more information about how AFI can help or to get started on your franchising journey, contact us today.
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