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What is included in the Franchise Disclosure Documentation?

So, you have decided to invest in a business and you are looking at franchise opportunities. That’s a good decision, however, for investors with less of knowledge may end up spending more time, effort and even costs in the case of errors.

Applying for a franchise in the United States means you will have to go through some legal documentations- Franchise Disclosure Documentation (FDD) earlier which was known as (UFCO) Uniform Franchise Offering Circular.

Governed by the Federal Trade Commission Rule of 1979, FDD secures the Franchise from those Franchisors who violate the provision of FTC Franchise Rule.

As per the FTC, a potential franchise must receive the documentation at least 14 days prior to signing an agreement and paying money to the Franchisor. There are 21 items

Information that can help you make better Franchise investment:

Section 1

Get to know about your franchisor:Analyzethe history of the Franchisor

How will it help you?

These details are the most important details when it comes to understanding the costs and risks involved in purchasing the franchise.

Section 2

Get to know about the key person’s background:Analyzethe key executive’s background and performance.

How will it help you?

Understanding the operating system and management, you can strategizea customer experience and service you can offer.

Section 3

Get to know about if any legal issue: Get a transparency about criminal charges and performance.

How will it help you?

Getting a chance to know about any Franchise violation in the past will help you understand better whether they are capable of making payments by tracking their past records.

Section 4

Get to know about their credit status: You will be able to access details related to the bankruptcy, including the executives.

How will it help you?

Understanding the credibility of the franchisor, you can forecast whether they will be able to offer product and services as it promises.

Section 5

Get to know about the franchising fee: The costs involved in running a franchise that includes deposits, initial inventory, advertising, and royalties.

How will it help you?

Having an approximate figure in mind can help you realize whether it’s the right franchise that you will invest in.

Section 6

Get to know about additional fees: The cost that will be involved in executive training and management.

How will it help you?

Having a forecast about the ongoing expenses for running the franchise can help you realize whether you will be able to manage the franchise until profit generated.

Section 7

Get to know about your initial investment: The cost that is related to the possession of the franchise.

How will it help you?

Getting a chance to separately understand the franchise estimated fee, can help gain better insights about the overall cash flow that will be involved.

Section 8

Get to know about the eligibility of products and services: Goods and suppliers that are available to make purchases.

How will it help you?

Understanding the eligibility of products, you can make a decision as per your skills and liking for investing in a franchise.

Section 9

– Get to know your duty as a franchise: The process and management of staff that will be dependent on you.

How will it help you?

Get a chance to know whether the franchise matches your skills and will you be able to churn productivity.

Section 10

– Get to know about your financing arrangements: The documents and procedure involved in applying for the franchise.

How can it help you?

You will get to know about the required documents and application procedure for the franchise, in a full-proof way.

Section 11

– Get to know they duty of the Franchisor: Contribution that your franchisor will have to perform in return.

How does it help?

Have an ability to select a franchise that matches your interest to avoid boredom and non-performance in future.

Section 12

Get to know Territory: The area/region that is eligible to run your franchise.

How will it help you?

An opportunity to understand your eligibility to start your franchise and forecast future performance.

Section 13

Get to know trademarks: The involvement of registration details

How will it help you?

The details about registered symbol or a logo that represents the franchise and its products to get an idea about your promotional strategy.

Section 14-

Get to know their security marks: The involvement of proprietary information

How will it help you?

With the patents, copyrights, you can understand the trust factor of the franchisor and its acceptance among potential customers.

Section 15

Get to know your duties at the franchise: A description of your contribution towards the franchise.

How will it help you?

Understand your key roles and management process to make informed decisions and strategy even before you start.

Section 16

Get to know about the products and good restricted: The name of products and services that are omitted from their offering.

How will help you?

By knowing the product criteria you can forecast an inventory strategy and sales to understand the profit-loss analysis.

Section 17

Get to know about the contractual obligations: The details about the franchise agreement.

How will it help you?

Having a track of renewal, termination, repurchase, modification to the franchise rights, you can prepare your business strategy.

Section 18

Get to know about public figures:  The big names involved with the brand

How will it help?

The franchisor, of course, gets the benefit of this, however, as a franchise you can use it as your promotional strategy.

Section 19

Get to know about the earnings: The average income, gross income, net profits, geographical location relevance

How will it help you?

Understanding this, you can make an informed decision based on facts and get a chance to forecast your growth opportunities too.

Section 20

Get to know about the franchise outlets: The selection of location as per franchise possession status

How will it help you?

Terminated, cancelled and non-renewed franchise can be a troublemaker for you, therefore having detailed information about the franchise location will help you decide better.

Section 21

Get to know about the financial statements: The financial status present and past

How will it help you?

This will help you to gain insights about the franchisor’s financial stability in the previous years, therefore you can analyze performance and invest in the best one.

Section 22

Get to know about the contracts:  The involvement of renewal and expiration

How will it help you?

Such information becomes very important to eliminate the risk of getting into legal charges for non-renewal of contracts.

Section 23

Get to know about the acknowledgment of receipts: The ability to get a confirmation of the franchise purchase.

How will it help you?

This will offer details about the franchise ownership, which becomes very important to get an approval after planning and spending your investment.

Closing note

From the above 21 section highlight details about the Franchisor, however, section 19 can be an optional disclosure under the FTC rule and State FDDs and section 20 that discloses about the list of franchises may not disclose the transfer and sales details.

Whether your decision is to start you own business or make an investment, having an idea about FDD will surely help you make informed Franchise investment in the US.

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