What is an FDD?

If you are considering buying a franchise, one of the most important documents you will come across is the FDD. But what exactly is an FDD? FDD stands for Franchise Disclosure Document, and every franchise has one.

Once you have filled out an application, the franchisor will send you the FDD to review. The FDD defines what the franchisor will do for you and what they expect of you as a franchisee.

The FDD may seem like an overwhelming document, so here is a summary of the topics covered.

Fees

Commonly called franchise fees, these include the initial fees that you pay for rights to use the business name, royalties, transfer fees if/when you sell the franchise, etc… The amount of fees and amount of money you will be spending varies from franchise to franchise. It is important to get a clear idea of the fees and payment you will be making once you own the franchise.

Background

This includes the management background of all the franchise officers.

Litigation

This will tell you if the company is facing any lawsuits.

Territories

This section explains how franchises will be zoned. Will you have your own protected area? Will other franchises be allowed to take clients in your area? This is very important because you do not want to be competing with fellow franchisees.

Disputes

FDDs will also have a section on how to settle disputes.  This may differ amongst different states, and you may have to travel out of state for certain disputes.

Financial Statements

This section shows you the financials of the company, like how much cash they have and if they are losing money.

Outlets

The term ‘outlets’ refers to franchises. This shows the number of current outlets and any that are in developments.

Earnings Claims

The FTC (Federal Trade Commission) allows franchises to supple information about the earning of each franchise.

The FDD is a crucial part of deciding whether a particular franchise is right for you, so it is important you have legal help when reviewing the FDD.

If you are considering a franchise, Executive Care has territories available. For more information visit http://franchise.executivehomecare.com/