Making your way through the Franchise Disclosure Document (FDD)
You’ve had enough of the corporate world and have decided you want to be your own boss and are ready to invest in franchise ownership. You’ve done your research, identified the best match for your business needs and are ready to make that leap. What now? Well, before you visit any location for a Decision Day, you will be given a Franchise Disclosure Document (FDD) to review. The document seems overwhelming, but it is vitally important that you take the time needed to read and understand it. After all, you are about to make a big investment!
What is It?
The FDD is a 23-part document that reviews the franchisor’s history, the company structure, legal history, financial agreements and payment schedules, existing franchisees, and mutual expectations, among many other things. The Federal Trade Commission requires that potential franchisees receive the FDD at least 14 days before signing an agreement. This mandatory timeline is to give you enough time to read and understand the material. While prospective franchisees are encouraged to review the FDD with an experienced lawyer, this may not be realistic for everyone. Fortunately, franchise companies like Home Clean Heroes include a walkthrough of the FDD with a franchise development representative as part of the sales process to ensure you understand the material in the document and have an opportunity to ask questions.
Why Is the FDD Important?
The FDD is meant to protect potential franchisees by putting everything on the table. It’s important to painstakingly review this document and capture any questions you may have or clear up points you don’t understand, so be diligent!
What Should You Pay Attention To?
Of course, you should thoroughly read each section of the FDD in its entirety, but there are several items that warrant a little bit more attention.
- Item 1 gives a detailed background of the franchise, its company structure, and overview of the industry. This will give you a general idea of how the franchise has grown, what it values, and how it’s organized.
- Items 3 & 4 review any litigation or bankruptcy history the company may have. Any information in these sections should raise a red flag. It could indicate problems with that company’s system, both with the franchisor and the franchisees.
- Items 5-7 outline the franchise fees, initial investment, and other deposits. Perhaps the most important items to prospective owners, this section helps set financial expectations and gives a good idea of how much a particular franchise will cost both upfront and down the road.
- Item 20 provides information about franchises and basic details about their business.
Reviewing the FDD can be an intimidating task yet is a critical step to owning a franchise. A good Franchise Disclosure Document will give you all the information you need to make a well-informed decision. Remember, Home Clean Heroes makes the process a little bit easier by reviewing our FDD with each prospective franchisee in a one-on-one meeting before any contract is signed.
If you think a low-cost franchise in a booming industry, with extensive training and ongoing support plus great earning potential, is right for you, check out the Home Clean Heroes Franchise website for more information. We’d love to have you on the team!Back