The Franchise Disclosure Document (FDD) is something that every franchisee will have to face at some point. As you work through the legal and financial details of this document, it’s quite normal to feel a little intimidated. As with most things in life, the FDD is a lot less scary once you understand it.
In today’s post, the FranNet team offers an introductory lesson about what to expect when presented with a Franchise Disclosure Document for the first time.
Understanding Disclosure Documents
The application process varies from one franchisor to another, but most will grant you access to the Disclosure Document only after you’ve been accepted as a potential entrant into the franchise system. The FDD is not a public document, and will usually be kept private from anybody who isn’t a serious investor in the brand.
The Franchise Disclosure Document is a summary of all business information pertaining to the franchisor. With that said, it’s important to remember that the disclosure document is just a summary.
Canadian franchises are legally obligated to give prospective franchisees a copy of the Disclosure Document in certain provinces, but it’s standard practice even for those operating outside of these places.
Franchisors who neglect to comply with franchise legislation and provide the FDD give their franchisees the ability to rescind the franchise agreement for up to 24 months from the time it was initially signed. Additionally, franchisees in these circumstances are usually compensated for any losses incurred while preparing the business for launch before the deal was rescinded.
Inside the FDD
The FDD usually contains the following information:
- The brand’s corporate name
- Nature of the business and the “Mission Statement”
- Details regarding the experience of the directors, executives, and officers of the franchisor
- Legal history of the franchisor, as well as its directors, officers, and associates. This includes any previous convictions, bankruptcies, or liabilities.
- Investment details, including initial franchise fee, royalty structure, estimated working capital requirements and operating costs (including the costs of marketing) and any other fees which are payable under your unique franchise agreement. Some franchisors also include information about financing arrangements. This section usually also contains the franchisor’s Financial Statements.
- Preliminary details about the franchisor’s training programs
- An outline of your obligations as a franchisee in their franchise family, including whether or not you are required to take part in the actual day-to-day operations.
- An outline of the assistance, coaching, and ongoing support services that will be provided by the franchisor.
- A detailed outline of the brand’s marketing fund, including past and projected spending
- A list of restrictions on what the franchisee may sell
- Details about any special licenses that may be needed to operate the franchise
- Detailed discount policies and volume rebate information
- Territory information, including a list of existing franchisees with contact information, as well as those that are available
- Term, renewal, termination, and transfer information
- Conflict resolution protocols and policies
- List of franchisee contracts that have been cancelled or not renewed
- Franchise Agreement
Learn more about the FDD
Prospective franchisees must study the FDD carefully, but remember: the franchise agreement is the real key. At the end of the day, this will be the document that you sign. If you’d like to learn more about how to interpret the information in the FDD to make the best decision you can, contact our team.
About FranNet Canada
FranNet is a 29-year-old company with roots in the U.S. Its purpose being to nurture every entrepreneur’s dream of business ownership. We actively employ a specific profiling and consultation method. This method is geared to each investor with a specific business model and based on franchise trends typically found in Toronto, Ontario, Vancouver, British Columbia, or Calgary, Alberta. The most lucrative Canadian franchise opportunities are waiting for you.