What Is the Franchise Disclosure Document and Why Do You Need it to Franchise Your Business?
When you franchise your business you’ll need to have a number of resources ready for your franchisees, and the franchise disclosure document (FDD) is perhaps the most important. The FDD spells out everything investors need to know about your brand, giving them a clear picture of what they should be prepared for when they become a franchisee. Here, we’ll take a closer look at the FDD and why it matters.
Why Do I Need a Comprehensive FDD?
The FDD is intended to give prospective investors all the information they need to make an informed decision about investing with your company. It includes sections on estimated total cost, the performance of existing locations, what they can expect to receive from you, and much more. When franchisees sign their franchise agreement (the final, binding contract that establishes them as franchise owners) they are indicating that they’ve read, and agree to, the terms outlined in the FDD. Therefore, the more information you include in the FDD, the greater the likelihood that your franchisees will be satisfied in the long-run. As you can see, the FDD is one of the most important things to take into account when you franchise your business.
Money in the FDD
Money is an important part of the FDD. You’ll need to give numbers in many places, such as:
- The estimated total investment, including the initial franchise fee
- Ongoing royalty payments and other fees
- Any travel costs franchisees will incur
While it’s not required, many franchisors opt to include information on the performance of their existing franchises. While this number can be difficult to come by (often it’s self-reported by franchisees), its inclusion is a good signal to potential investors that you want to be transparent.
Franchisor Obligations in the FDD
When entrepreneurs opt to open a franchise, they’re charged an initial franchise fee. This fee is often substantial, so franchisees want to know that they’re going to receive plenty of support to help them start off strong. The FDD outlines exactly what they can expect from their franchisor, including:
- Initial training
- Professional development
- Any resources they will have access to (e.g. software, mentoring systems, business advising)
- Help opening their store (e.g. location scouting, on-site assistance)
In the same vein, when you franchise your business, you’ll want to develop a strong package of resources like these to attract investors. Accurate Franchising, Inc. can be a great help when it comes to developing your training and support programs.
Many franchisors choose to award their franchisees a “territory,” which is basically an exclusive area in which to operate. Accurate Franchising, Inc. can help you to assess the value of a wide range of territories, helping your franchisees manage their competition. If your franchise awards territories, a clear explanation of their area should be provided in the FDD.
As you can see the FDD is a crucial consideration as you franchise your business. Contact us today to learn more about how we can help you to develop this important document.