You may have seen a FDD before, but if you haven't, below are tips to assist you in your exploration.
WHAT IS A FDD?
A FDD, or Franchise Disclosure Document, is a disclosure document that provides information about a franchise, for the prospective franchisee, which is required by the Federal Trade Commission. A FDD contains background information about the company and lists 23 items that cover just about everything you'd need to know the franchise.
WHAT INFORMATION IS FOUND IN THE FDD?
The purpose of the FDD is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision.
THE DISCLOSURE DOCUMENT (FDD)
- Item 1: The franchisor and any parents, predecessors and affiliates. This section provides a description of the company and its history.
- Item 2: Business experience. This section provides biographical and professional information about the franchisors and its officers, directors, and executives.
- Item 3: Litigation. This section provides relevant current and past criminal and civil litigation for the franchisor and its management.
- Item 4: Bankruptcy. This section provides information about the franchisor and any management who have gone through a bankruptcy.
- Item 5: Initial fees. This section provides information about the initial fees and the range and factors that determine the amount of the fees.
- Item 6: Other fees. This item provides a description of all other recurring fees or payments that must be made.
- Item 7: Initial investment. This item is presented in table format and includes all the expenditures required by the franchisee to make to establish the franchise.
- Item 8: Restriction on sources of products and services. This section includes the restrictions that franchisor has established regarding the source of products or services.
- Item 9: Franchisee's obligations. This item provides a reference table that indicates where in the franchise agreement franchisees can find the obligations they have agreed to.
- Item 10: Financing. This item describes the terms and conditions of any financing arrangements offered by the franchisor.
- Item 11: Franchisor's Assistance, Advertising. Computer Systems and Training. This section describes the services that the franchisor will provide to the franchisee.
- Item 12: Territory. This section provides the description of any exclusive territory and whether territories will be modified.
- Item 13: Trademarks. This section provides information about the franchisor's trademarks, service and trade names.
- Item 14: Patents, copyrights and proprietary information. This section gives information about how the patents and copyrights can be used by the franchisee.
- Item 15: Obligation to participate in the actual operation of the franchise business. This section describes the obligation of the franchisee to participate in the actual operation of the business.
- Item 16: Restrictions on what the franchisee may sell. This section deals with any restrictions on the goods and services that the franchisee may offer its customers.
- Item 17: Renewal, termination, transfer, and dispute resolution. This section tells you when and whether your franchise can be renewed or terminated and what your rights and restrictions are when you have disagreements with your franchisor.
- Item 18: Public Figures. If the franchisor uses public figures (celebrities or public persons), the amount the person is paid is revealed in this section.
- Item 19: Financial Performance Representations. Here the franchisor is allowed, but not required, to provide information on unit financial performance.
- Item 20: Outlets and Franchisee Information. This section provides locations and contact information of existing franchises.
- Item 21: Financial statements. Audited financial statements for the past three years are included in this section.
- Item 22: Contracts. This item provides of all the agreements that the franchisee will be required to sign.
- Item 23: Receipts. Prospective franchisees are required to sign a receipt that they received the FDD.