How do you use a franchise disclosure document to assess the financial performance of a franchise?

1 What is the FDD?

The FDD is a document that the franchisor must provide to prospective franchisees at least 14 days before signing the franchise agreement. It contains 23 items that cover various aspects of the franchise, such as the franchisor's history, fees, obligations, restrictions, litigation, trademarks, and financial statements. The FDD is designed to protect franchisees from fraudulent or misleading claims and to help them make informed decisions.

2 Why is the FDD important?

The FDD is important because it gives you a comprehensive overview of the franchise opportunity and the franchisor's track record. It also allows you to compare different franchises and to verify the information that the franchisor provides through other sources. The FDD can help you avoid unpleasant surprises and hidden costs that may affect your profitability and satisfaction as a franchisee.

4 How to analyze the FDD?

The FDD can help you analyze the financial performance of a franchise by providing data and benchmarks to evaluate its potential and viability. However, it is important to conduct your own due diligence and research. When evaluating a franchise, ask yourself questions such as: how realistic and accurate are the financial performance representations? How competitive and profitable is the franchise industry and sector? How affordable and sustainable is the initial and ongoing investment? And how supportive and transparent is the franchisor? Consider all these factors when assessing the market share, growth, reputation, quality, innovation, capital needed to start and run the franchise, cash flow and profit generation, training, assistance, guidance provided by franchisor, and their policies and terms.

5 How to use the FDD to negotiate?

The FDD can also be beneficial when negotiating terms and conditions with the franchisor. It can give you leverage by providing insight into what the franchisor offers and expects from its franchisees. You can use the FDD to request more information or evidence to support financial performance representations, seek lower or waived fees, negotiate more favorable or flexible terms, and ask for more support or benefits. For example, you can ask for sales reports, profit and loss statements, testimonials from existing franchisees, longer or renewable term, larger or exclusive territory, fewer obligations or restrictions, additional or customized training, marketing, or operational assistance, or access to better suppliers, vendors, or financing options.