Franchise Disclosure Agreement

Prospective franchisees interested in opening a restaurant franchise, hotel franchise, retail store franchise or any other type of franchise will be presented with a franchise disclosure document (FDD). These documents can be daunting, as they can run up to 200 pages long. However, it is critical to review the document thoroughly, as the success of your franchise will depend on your understanding of and compliance with the FDD.

The franchise development director may walk you through the document. Keep in mind though that the director does have an interest in getting you to sign, so that may influence how they present the information to you. It is in your best interest to take the time to review the document on your own or with the help of an independent party such as an attorney who practices franchise law.

Key Questions To Think About

What Are The Costs?

The FDD will detail the initial fees required to open the franchise. Be aware that these may be negotiable in some situations. The document should also break down other ongoing fees and costs.

What Are Your Sources For Supplies, Services And Products?

The franchisor may have requirements as to where you source the supplies and services you use in the operation of your business, as well as the products you sell. Franchisors do this to maintain a certain level of quality control, but it is important to research the costs of going through the sources to understand if they are fair.

Will There Be Unnecessary Competition?

In the FDD, you should find territory information. This will tell you how much space you have to operate free of competition from others who own the same franchise. You will want to know whether it is possible for another franchisee to open the same franchise as you two blocks away.

What Will The Franchisor Do For You?

Many prospective franchisees make the mistake of assuming that the franchisor will stand by their side at all times. The actual amount of support provided by the franchisor can vary dramatically from franchise to franchise. The FDD should explain exactly how much (or how little) help to expect.

How Will Disputes Be Resolved?

What happens when a franchisee gets into a disagreement with the franchisor? What will a franchisor do if a franchisee violates terms of the FDD? What happens when a franchisee gets into a dispute with another franchisee, or a supplier, or another party altogether? The FDD may provide specific details about dispute resolution methods.

These are just a few of the key points to look for when going through a franchise disclosure document. It is recommended that you do not skip over anything, and you ask questions about details that are unclear or do not make sense. Franchise law is complex, and so are these documents, but a careful reading can make all the difference.