GarageExperts Franchise Opportunities

What Is a FDD And How Does It Work?

If you are researching any franchise opportunities, you will learn about an important document called the FDD. This stands for Franchise Disclosure Document, and it’s vital to your research into a franchise organization. 

The FDD is a legal document that franchisors (the corporate company of the franchise) are required to provide to prospective franchise buyers before they can sign any agreements. The FDD provides detailed information about the franchisor in general (ownership and leadership structure), the franchise opportunity itself (the business offering), the terms of the agreement (length, cost, etc.), and other important information that can help potential buyers make an informed decision about investing in the franchise.

Step 1) Request the FDD from the franchisor you want to explore.

  • This will likely come in the format of an electronic signature package like DocuSign.

Step 2) Sign the receipt page at the very end of the document.

  • Signing the receipt page puts a timestamp as to when you received the document.
    • This does not bind or commit you to anything. Legally speaking, the franchisor must wait a minimum of 14 days after you have signed the receipt page before entering into any kind of agreement with you.

Step 3) Review the document in full and/or have a Franchise attorney review it.

  • Although it can be a long document, each section is intentionally included to make you well-informed about the opportunity.
  • If you do hire an attorney to review the document, make sure the attorney is experienced in Franchising specifically, as many of the terms are specific to how Franchise Laws are regulated at the federal level.

Step 4) Schedule time with the franchisor to go over any of your questions on the FDD.

  • While most franchisors do not make changes to the FDD upon request, it’s important to get clarity and understanding of the terms included.

Step 5) Dig deep into the available numbers.

  • Item 5 describes your initial Franchise Fee to get into the franchise.
  • Item 6 describes all of the ongoing fees associated with the business.
  • Item 7 details an estimated initial investment beyond the Franchise Fee in order to launch your franchise.
  • Item 19 gives performance representation figures based on the existing franchise owners in the system.
    • Some franchise companies disclose more or less information in this section (some none at all), so it’s important to ask as many questions as you can about this.

Step 6) Find the list of current and former franchise owners and make time to speak with as many as you can.

  • The franchisor’s job is to sell you on how great the franchise model is, but the franchise owners across the country can give you unfiltered responses about their experience as a franchise owner with that company.

To receive a copy of the GarageExperts® FDD, please reach out to the Franchise Development team at 214-984-3557 or fill out an inquiry form at www.garageexperts.com/franchising.

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