Spend any time exploring franchise opportunities and you're bound to hear of the Franchise Disclosure Document also known as the FDD.
A critical document within a franchise organization, the purpose of this document is to provide a prospective franchisee with detailed information about the franchise. All franchisor's must register their FDD with the Federal Trade Commission and provide prospective franchisees with exact copies. By law a prospective franchisee must have a copy of the FDD for a minimum of 14 days before entering a legally binding agreement with a franchisor.
A disclosure document will include a wide range of information including:
Franchise information and background.
Financial information about the franchise.
Information about a franchisors founders, management and key staff.
Franchisor's bankruptcy and litigation history.
Detailed explanation of initial and ongoing fees involved in owning and operating the franchise.
Breakdown of the investment required for ownership.
Explanation of territory rights.
Responsibilities of franchisor and franchisee.
Full contact information for all other franchisees within the system.
Most franchises not only encourage but require that a prospective franchisee spend time speaking with other franchisees in the system. This is a great method of getting "one owner to another" feedback about the franchise.
Earnings Claim / Item 19
While it is not required, some franchisors will include an earnings claim (also referred to as Item 19) detailing average revenues of existing franchises in their system.
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