What You Should Know About the Franchising FDD – FranFinders
What is the FDD in franchising and why is it important?
The FDD is a lengthy document, so I will outline the most important items here:
- The first item: The FDD is a legal document that is presented to a prospective buyer when they are considering buying a franchise. This document is typically very lengthy in nature and consists of about a couple hundred pages and it will put you to sleep if you attempt reading it all at once.
- The FDD was previously referred to as: The Uniform Franchise Offering Circular, or an UFOC, and was renamed to an FDD by the Federal Trade Commission in 2007.
- Although the Federal Trade Commission regulates franchising, they do not verify the information contained in the FDD.
- You will want to confirm when the date the FDD was issued. The date is located at the bottom of the first page of the document and should reflect the current year.
- A potential franchise buyer can request this document after their first conversation / or meeting with the franchisor.
- There are 23 Items that define the terms in the document. The franchise agreement is a separate Exhibit and this is the document that will be signed.
- The Number of Items are the same in every FDD, however, the information differs.
- Some important items in the FDD include: the franchise fee, the royalty costs and other monthly fees, the total investment, the territory size, the length of the agreement, the number of outlets and their turnover rates, and sometimes earnings claims are published in some FDD’s, however, the franchisor is not required to by law. It is at the discretion of each franchisor.
- There are several Exhibits, which vary in each FDD, but some of the more important Exhibits include: the franchisor’s corporate financials, a list of active, terminated and non-renewed franchisees.
- Finally, you will want to sign the receipt upon receiving this document, as the clock starts ticking before you can purchase a franchise. This time frame is 14 calendar days before you can buy a franchise.
- There are some very important laws that all franchisors have to follow and if they violate these laws, civil and criminal penalties could be enforced by the FTC. We highly recommend that you seek legal counsel before buying any franchise / or business opportunity.
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Sue Bennett is the Co-Founder of FranFinders, a franchise consultancy and funding group. At FranFinders, we are more than franchise consultants. We are “Your Partners.” Throughout your franchise search, from the Initial Call to your Grand Opening, we are with you “Every Step of the Way.” By partnering with us, you get our Experience, Knowledge and proven 10 Step Franchise-Buying Process that will bring Clarity and Direction to your franchise search. Gain Confidence, knowing that you are partnering with professionals.