Franchise Disclosure Documents

The Franchise Disclosure Documents (FDD) is governed by the Federal Trade Commission (FTC) in the United States and twenty three states also have their own requirements before a franchisor can sell franchises in these states. Included in the franchise disclosure documents are the contractual obligations of the franchisee to comply with the standards set forth by the franchisor, fees paid to the franchisor, roles of the franchisor and franchisee, territory information and the other contractual terms related to the franchise. The Franchise Disclosure Document is an important step when one would learn how to franchise business and should be reviewed by franchise consultants at the Franchise Edge.

The FDD becomes the basis for the relationship between the franchisee and the franchisor and should be prepared with two criteria in mind. The first criterion is to determine what business terms should be included in the franchise disclosure documents. This can be accomplished by a thorough analysis of your business, the competition and the industry to insure that the franchise is viable for a franchisee and the franchisor and must take the following items into consideration:

• Royalties and franchise fees
• Territory size, exclusivity and market potential
• Suppliers and vendor rebates
• Franchisee controls
• Non-completes
• Minimum performance criteria, if applicable
• Insurance
• Owner operator or absentee owner franchisees
• Exit strategies for franchisor and franchisees

Once the business modeling is completed with the above information it is time for second criteria for your disclosure documents: Does it provide you with the legal protection that is needed? A respected franchise attorney should be utilized for this legal protection.