What to look for in a Franchise Disclosure Document (FDD)

What to look for in a Franchise Disclosure Document. (FDD)

The Franchise Disclosure Document (FDD) is one of the most important resources for potential franchisees. It provides detailed information about the franchise, helping you make an informed decision. Here's what to look for in a franchise disclosure document.  

Key Sections to Review

Item 1: The Franchisor and Its Affiliates

Learn about the company’s history and leadership.

Item 5-7: Fees and Financial Commitments

Understand the costs involved, including initial fees and royalties.

Item 19: Financial Performance Representations

Check for earnings claims and historical performance data.

Item 21: Financial Statements

Evaluate the franchisor’s financial stability.

Red Flags

Lack of transparency in fees.

Poor financial performance data.

High litigation rates involving the franchisor.

Conclusion

Carefully reviewing the FDD is essential before signing a franchise agreement. Every item on the FDD (23) provides valuable insight to a potential franchisee. Consider consulting a franchise attorney to ensure you fully understand the document. Ideal Consulting can help you navigate  the complexities of an FDD helping you make an informed decision on a franchise. Contact us today to get started.

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