The Franchise Disclosure Document (FDD)

The Franchise Disclosure Document

What’s actually inside the FDD, what it can tell you, and the one thing it can’t.

200+ pages · 23 items · FTC regulated · Updated annually

The Franchise Disclosure Document. This is the 200-plus-page legal portion of the show.

The FDD is regulated by the Federal Trade Commission. The FTC has created this document as a template that every franchise must follow. The FDD is updated every single year, in every state.

How the Document Is Built

Pages 1–50 — Divided into sections referred to as items. There are 23 items.

The remainder — The actual franchise agreement that you would ultimately sign, plus several addendums to the agreement.

During the Discovery Process, you will have an opportunity to speak with members of the franchise team to review this document and ask questions. Our team at FranCoach will help you with this as well.

The FDD Will Not Tell You Which Franchise to Own

The FDD seems like a document that could be the most important piece of the process — one that potentially contains the answers you are looking for to determine if this is the right franchise for you.

However, that is not the case.

There is nothing — and I mean nothing — in the FDD that’s going to tell you which is the best franchise to own.

Is there information in that document that is important and helpful? Absolutely there is.

Where Most People Look First

The first place most people look are the items that disclose the financial component of the franchise.

Item 7

Lists costs and fees of becoming a franchise owner. This can be very helpful. But it is important to note that it does not always include all of the costs and fees you will incur as a franchise owner.

Item 19

Where a franchise can report revenue. A few things to understand about it:

• Franchises are not required to include anything in an Item 19.
• When they do include data, there is no set regulation for what a franchise can and cannot include.
• Franchise owners are not required to submit this information, and the franchisor can use what they receive however they choose.

Oftentimes it will show top-line revenue as reported by franchise owners, typically in some sort of tier based on tenure of an owner, and maybe where they sit as a ranking relative to other owners.

So while there may be some very useful information in the Item 19, it does not give a complete financial picture. It does give the beginnings of it. The validation calls with owners are how we will get a much clearer financial picture for the franchise.

What Else Is in the 23 Items

• Biographical information on the executive team.
• Litigation the franchise has had.
• All of the owners within that franchise system, listed with their contact information.
• Responsibilities — some basic responsibilities of you as a franchise owner, as well as what is expected from the franchisor. This doesn’t mean your day-to-day role as an owner; this is more the legal aspect of operating a franchise.
• Brand protection — a couple of items discussing the way a franchise protects the brand and the steps they can take to ensure brand integrity and consistency.

The Brand Protection Language

Some of this language can feel harsh or one-sided in favor of the franchise. When you read language stating something to the effect that a franchise can come take over your location, or put one right next to you, it can sound frightening.

But the question to ask at this point is why would they do that? And more importantly:

What would you have to be doing — or not be doing — as a franchise owner to make that happen?

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Are you going to be the franchise owner who follows the plan and puts forth the effort they need to as an owner?

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Or are you going to disregard everything this franchise stands for and what they want you to do in business?

If it’s the latter, then this language is directed at you. And just let me help you: there’s no way you should own a franchise — any franchise at all, in fact — if this is the case.

Now read it again

But when it is the former, and you intend on following the plan to the best of your ability and putting forth the effort that is required, then I want you to read that language again. This time, envision another scenario.

You are an owner doing everything you’re supposed to be doing. But now here comes another owner into that system who’s messing everything up. This owner is damaging what is now your brand.

Do you want the franchise to do anything? Do you want them to let that owner continue disregarding everything the franchise stands for? Or do you want the franchisor to go to this misbehaving owner and either smack them around and get them in line, or get them out of the system?

Once you become an owner and you are doing things the right way, this language is still one-sided — but it’s one-sided protecting you.

You are now part of that franchise brand, and you are not going to want anybody else to come in and mess that up.

That is a little bit about the FDD.