A franchise investment usually means parting with some hard-earned cash. It is meant to help you establish a long-term relationship with a franchisor and make money in the process as well. A franchise opportunity is not something you should treat with kid’s gloves. The economy can be very unpredictable and you should play it smart and not flush your money down the drain. This is why you need to be absolutely sure about the opportunity that you are getting into. This is why there is importance of Franchise Disclosure document.
It makes a lot of sense to always read and understand a Franchise Disclosure Document. You should never sign any franchise agreement or pay any money until you do so. A franchisor is meant to give the FDD to every prospect at least 2 weeks before money is exchanged or any agreement is signed. A FDD basically discloses what is expected from a franchisor. It also elaborates on financing, fees, litigation, terms of the agreement and more.
In the FDD, you will find crucial information about a franchisor’s previous activities and how long the business has been around. This comprehensive document is also bound to disclose a franchisor’s litigation history for the last decade. This mainly centers on the number of court cases filed against franchisees or the other way round. This should put you in the loop about the state of the franchise and whether it is indeed keeping franchisees happy.
In addition, a Franchise Disclosure Document highlights how much a franchise opportunity will cost you and allows you compare it with other programs. Furthermore, the FDD helps you pinpoint restrictions when you purchase inventory, supplies and other materials. This document tells you where to purchase these things in case you might encounter problems with quality or keeping costs low.
It is important to note that your franchisor will get kickbacks or commissions from these suppliers or selected contractors. It is not out-of-place to be aware of the commission or percentage earned from this venture. And if the franchisors have a vested interest in the suppliers that all franchisees are meant to use, you need to have it confirmed.
The FDD is meant to shed light on what you would be getting into, if you choose to sign the dotted lines. Besides, getting this document, you are at liberty to also talk with a representative in order to iron out any grey areas. It is crucial that you are comfortable with the entire document and not be surprised or taken aback by anything in future. Every year, a Franchise Disclosure document is updated with new information.