FDD Overview

Please review the below which will outline some Items in the FDD - This is very general information. If you would like to dive into an FDD further, Please contact a Franchise Attorney or ask for a referral.

  • Item 1 of a Franchise Disclosure Document (FDD) is the "Franchise Offer and Sales Disclosure" section. This section contains a detailed description of the franchise opportunity being offered by the franchisor, as well as any important terms and conditions that apply to the franchise agreement.

    Some of the key items that may be included in this section include:

    The nature of the franchise business and the products or services that will be offered by the franchisee.

    The total investment required to start and operate the franchise, including any initial franchise fees, ongoing royalties, and any other costs or fees that may be incurred.

    The terms of the franchise agreement, including the length of the agreement, renewal provisions, and any exclusivity provisions that may apply.

    The support and training that will be provided by the franchisor to the franchisee, including any ongoing assistance with marketing, operations, or other aspects of the business.

    Any requirements that the franchisee must meet in order to qualify for the franchise, such as financial or experience qualifications.

    Any restrictions or limitations on the franchisee's ability to operate the franchise, such as territory restrictions or exclusivity provisions.

    This section of the FDD is designed to provide prospective franchisees with a clear understanding of the franchise opportunity being offered, as well as any important terms and conditions that may apply. It is a key source of information for anyone considering becoming a franchisee and should be carefully reviewed before making a decision to invest in a franchise.

  • Item 2 in a Franchise Disclosure Document (FDD) is called the "Business Experience of the Franchisor and its Key Personnel." This section provides information about the franchisor's business history, including the length of time they have been in business, the number of franchises they have, and any relevant experience or expertise they have in the specific industry. This information is important for potential franchisees to understand because it gives them insight into the franchisor's business model and their ability to support and guide their franchisees. Additionally, this section provides information about the key personnel of the franchisor, including their names, titles, and relevant experience and qualifications. This information can help potential franchisees understand who they will be working with and the level of support and expertise they can expect from the franchisor.

  • Item 3 of the FDD is titled "Litigation" and it provides information about any legal actions or claims that have been made against the franchisor, or any of its affiliates, directors, or officers, within the past ten years. This includes any lawsuits, arbitration proceedings, or administrative proceedings that are pending or have been resolved.

    The purpose of Item 3 is to inform potential franchisees about any legal issues that the franchisor has faced, so that they can make an informed decision about whether or not to invest in the franchise. It is important to note that the presence of litigation in Item 3 does not necessarily mean that the franchisor has engaged in wrongdoing or that the franchise opportunity is not a good one. However, it is important for potential franchisees to carefully review this information and consider it as part of their overall evaluation of the franchise opportunity.

  • Item 4 of the Franchise Disclosure Document (FDD) is the list of initial fees that a franchisee must pay to the franchisor before starting the franchise. This includes the initial franchise fee, which is a one-time payment that grants the franchisee the right to use the franchisor's brand, trademarks, and systems. Other fees listed in Item 4 may include an advertising fee, real estate fees, training fees, and any other upfront costs associated with opening and operating the franchise. This information is important for potential franchisees to understand and budget for as they consider investing in a franchise.

  • Item 5 of the Franchise Disclosure Document (FDD) is a section that provides information about the franchisee's business. It includes details about the business model, operations, and training provided to the franchisee. This section also includes details about the services and products offered by the franchise, as well as any marketing and advertising support provided by the franchisor. Additionally, this section may include information about the franchisee's financial performance, such as revenue and profit data. Overall, Item 5 is designed to provide the franchisee with a comprehensive understanding of the business they will be operating and the support they will receive from the franchisor.

  • Item 6 in the Franchise Disclosure Document (FDD) is titled "Franchisee's Obligations." This section outlines the specific responsibilities that a franchisee will be expected to fulfill while operating a franchised business.

    Some of the obligations that may be included in Item 6 include:

    Adhering to the franchisor's operating standards and procedures: Franchisees are typically expected to follow the franchisor's established systems and processes for running the business, including customer service standards, marketing campaigns, and employee training protocols.

    Complying with local, state, and federal laws: Franchisees must follow all applicable laws and regulations, including health and safety codes, labor laws, and business licensing requirements.

    Maintaining the appearance and condition of the franchised business: Franchisees may be required to maintain the exterior and interior appearance of the business, including signage, uniforms, and equipment.

    Reporting and accounting for business activity: Franchisees may be expected to report sales and other business metrics to the franchisor on a regular basis, as well as keep accurate financial records.

    Paying required fees and royalties: Franchisees will be expected to pay the franchisor a percentage of their sales or a flat fee in exchange for the use of the franchisor's brand and support.

    Participating in training and ongoing support: Franchisees may be required to attend initial and ongoing training programs provided by the franchisor, as well as seek support from the franchisor when needed.

  • Item 7 of the FDD is a financial performance representation, also known as an earnings claim or earnings statement. It is a summary of the financial performance of a franchised business and provides information about the potential financial performance of a franchise. This information can include the franchisor's historical sales and revenue data, as well as estimates of the potential financial performance of a franchise based on certain assumptions and factors.

    It is important to note that the information provided in Item 7 of the FDD is not a guarantee or projection of a franchisee's future financial performance. It is simply a summary of the financial performance of a franchised business, and it is up to the franchisee to use this information, along with other resources and due diligence, to make an informed decision about the franchise opportunity.

  • Item 8 in the franchise disclosure document (FDD) is a list of the franchisee's initial and ongoing fees. This includes the initial franchise fee, any ongoing royalties or marketing fees, and any other fees that the franchisee will be required to pay to the franchisor.

    The initial franchise fee is a one-time payment that the franchisee makes to the franchisor when they first join the franchise system. This fee covers the costs of providing the franchisee with the necessary training, materials, and support to get started in their new business.

    Ongoing royalties are a percentage of the franchisee's gross sales that they must pay to the franchisor on a regular basis. These fees are usually used to cover the costs of providing ongoing support and resources to the franchisee.

    Marketing fees are also required by some franchisors, and these are used to cover the costs of promoting the franchise system and its products or services.

    Other fees that may be listed in item 8 of the FDD include fees for additional training, supplies or equipment, and any other expenses that the franchisee may incur during their time as a franchisee. Overall, item 8 in the FDD provides a clear overview of the costs that the franchisee can expect to pay to the franchisor, both initially and ongoing.

  • Item 9 of the franchise disclosure document (FDD) is a section that provides information about the franchise system's financial performance representation. This includes any financial performance representations made by the franchisor, such as earnings claims or profit projections.

    The financial performance representation section must include a clear and conspicuous statement indicating that:

    The financial performance representation is not a guarantee that the franchisee will achieve the same results.

    The representation is based on a certain level of performance, and may not be applicable if the franchisee does not meet certain requirements or conditions.

    The franchisor has not audited or verified the accuracy of the representation.

    The FDD must also provide a list of the 23 most important factors that may affect the financial performance of a franchise, including location, hours of operation, competition, and local economic conditions. This allows the franchisee to understand the variables that may impact their financial performance and make an informed decision about whether the franchise opportunity is a good fit for them.

  • Item 10 in the Franchise Disclosure Document (FDD) is a description of the franchisee's initial investment. This includes a detailed breakdown of the costs associated with starting and operating the franchise, including any initial fees, equipment costs, training costs, and ongoing expenses such as rent and utilities. It may also include estimates of additional expenses that may be incurred during the first year of operation, such as marketing and advertising costs. The purpose of this section is to provide potential franchisees with a clear understanding of the financial commitment required to start and run a franchise.

  • Item 19 in the franchise disclosure document is a financial performance representation, which is a statement about the financial performance of the franchise system. This item provides information about the potential financial performance of the franchise, including the estimated initial investment required to start the franchise, the expected sales and profits, and any other financial projections. This information is intended to help potential franchisees understand the potential financial return on their investment and make an informed decision about whether to invest in the franchise. It is important to note that these financial performance representations are only estimates and are not guaranteed. It is recommended that potential franchisees seek independent financial advice before making any investment decisions.