An Insiders Guide To Understanding a Franchise Disclosure Document

The Franchise Disclosure Document is a way to keep a Franchisee safe. The problem is that most people have no idea how to read yet alone understand a Franchise Disclosure Document (FDD).

This reality brought out a whole bunch of people who call themselves Franchise
Brokers, when in reality they have no licensing nor are they required to have such. Perhaps they can be called Consultants, but a Broker is somebody licensed by the Dept. of Real Estate and if you are searching for a franchise opportunity, look for a licensed one.

Let’s do a quick rundown of the FDD. A comprehensive book is available at my website, www.franchisebrokersinc.com.

Summary Page identifies what the franchise opportunity will cost you. If this number seems high, you may wish to reconsider.

Item 1 identifies who the Franchisor is and who are the partners in this business. It’s good to know who you are getting into business with.

Item 2 identifies the experience of the Franchisor executives. This is a critical area.

Item 3 reveals the litigation, if any, the company is in or has gone through. This is best understood with the help of a Franchise Broker.

Item 4 discusses any bankruptcy issues the Franchisor has present or past.

Item 5 Discusses the initial fees. Again best understood with a Broker.

Item 6 reveals other fees that may have not been disclosed.

Item 7 breaks down your total initial investment.

Item 8 discusses the restrictions Franchisors put on their Franchisees.

Item 9 talks about the Franchisors responsibilities.

Item 10 discusses financing, a must have for most buyers.

Item 11 lets you know what assistance you will receive for training, advertising and general support.

Item 12 talks about territories.

Item 13 discusses trademarks and who owns them.

Item 14 continues with a discussion about patents and copyrights.

Item 15 will let you know if you can be an absentee owner.

Item 16 discusses what you can and cannot sell.

Item 17 discusses the renewal and termination aspects of a franchise.

Item 18 discusses any public figures involved with the business.

Item 19 is the meat of the FDD with a detailed financial picture of the business.

Item 20 reveals all of the outlets, how many are selling and what the count is.

Item 21 has the financial statements and is very important to understand.

Item 22 contains all the contracts you will sign.

Item 23 is the receipt section showing you were given this document.

If you are considering purchasing a franchise opportunity call us for some consultation. It is at no charge as our fees are paid out of the Franchisors marketing fund. We are here to help.

Chuck Machado has 35 years of experience in running and managing companies. After college he started a steel company and grew it into a multi million-dollar business by building fast track retail outlets throughout the west coast. His clients included the biggest names in retail. Among them: Wal-Mart, Home Depot and Kmart. After a short retirement, he realized the lure of business and real estate had a hold on him. His quest lead him to partner with CMA Capital Funding, a commercial brokerage house where he provided short and long term financing for investors and business owners. To further his education, Chuck has undertaken & completed the rigorous requirements necessary to earn the title of Certified Business Intermediary (CBI) issued by the International Business Brokers Association. His passion lead him to representing clients who have a desire to own franchises and partner with The Franchise Brokers Association. He holds a California Brokers License and can be reached at chuck@franchisebrokersinc.com

Leave a Reply

Your email address will not be published. Required fields are marked *

Security Code: