Franchise Buyers; Don’t Bother Reading The Franchise Disclosure Document

fdd

(A Franchise Document.)

You have choices.

For example, the Small Business Administration and/or the Federal Trade Commission, suggests that franchise buyers read the entire Franchise Disclosure Document, (FDD) before entering into a formal agreement with a franchise company.  I disagree.  Reading the 200+ page legal and financial document that the US Government requires franchisors to send to prospective franchise buyers is a royal waste of time.  And who wants to waste time in our fast-paced world, these days?

I’m serious; don’t waste your time reading the FDD. It’s not all that important. As a matter of fact, some franchisors don’t even feel that it’s too important; they don’t like to send their FDD’s to you until they have to.

Now, just in case you don’t know what the US Government requires franchisors to list in the document, I’ve included them below.

Look;

  • The Franchisor, its Predecessors, and its Affiliates
  • Business Experience
  • Litigation
  • Bankruptcy
  • Initial Franchise Fee
  • Other Fees
  • Initial Investment
  • Restrictions On Sources Of Products And Services
  • Franchisee’s Obligations
  • Financing
  • Franchisor’s Obligations
  • Territory
  • Trademarks
  • Patents, Copyrights and Proprietary Information
  • Obligation To Participate In The Actual Operation Of The Franchise Business
  • Restrictions On What The Franchisee May Sell
  • Renewal, Termination, Transfer And Dispute Resolution
  • Public Figures
  • Earnings Claims
  • List Of Outlets
  • Financial Statements
  • Contracts
  • Receipt
On the surface, those 23 items certainly look important. Seeing imposing words like termination, restriction, obligations, and the like, can certainly start to put things in perspective for those contemplating a $200,000 investment into a franchise business of their own. Heck, I’ve seen some franchise buyers, upon seeing an FDD, run to the exits!

 

I’m serious; I’ve worked with more than a few franchise candidates who, after reading through the FDD, told me that they’re not interested in becoming franchise owners. For them, seeing all the things that franchisors require their franchisees to do, all the rules that are in place, (to protect the business model and maintain brand consistency) all of a sudden seemed way too restrictive for them.

I should have known that they never would have made good candidates for a franchise type of business. Well, actually, I did kind of know; they didn’t follow my suggestions with regards to the Franchise Disclosure Document, and that in itself, should have been a red flag.  It took me about two years to learn a really important fact about franchise buyers. Here it is;

If a franchise buyer that I was working with refused to follow my step-by-step franchise exploration and research process, they probably weren’t franchise material.  

The business model of franchising is a rigid one; it involves serious rule-following. It involves following specific procedures that every other franchisee follows, system-wide. Can you imagine what this franchise would be like if all of their franchisees did their own thing?

The FDD is in fact, important. Just not at the beginning of your franchise search.

Here’s a good place to search for a franchise. 

When you first start learning about a specific franchise business opportunity, learn about the model. Let the franchise development director tell you why it’s a great business to get into. Find out what your specific role would be as a franchise owner. If you’re still interested after you’ve learned those things, and you can easily visualize yourself as an owner, start reading the FDD. Reading the FDD before you even know if  the franchise you’re interested in could work, is a massive waste of time. All of the restrictions….all the rules that are laid out in the FDD won’t matter in the least if the franchise just isn’t right for you.

My dad always told his candidates that, “The FDD isn’t the business.” What he meant was this;

You’re not buying a document; you’re buying an opportunity. You’re investing in your future.

Make sure the franchise opportunity you’re interested in makes sense for you, in your unique situation, and that it will allow you to use your unique skills to grow it. If you feel that it could help you reach your personal and professional goals, go ahead; dig into the FDD. Write down any questions or concerns you have right on the document itself, and share them with the franchise development director.

When it’s time to move forward with the opportunity, hire a franchise attorney to go through it with you, and to point out anything that could be a concern.

In summation, you don’t need to read the FDD until you’re starting to feel that the opportunity that’s being presented could be right for you.

I go through the franchise exploration process in a lot more detail in Become a Franchise Owner! my 1st book.

joel libava franchise book

Click the book!

 

 

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  • Anonymous

    Unique advice that actually makes sense. When the opportunity feels right then it’s time to get with your attorney to point out possible concerns.

    • http://www.TheFranchiseKing.com The Franchise King

      Thanks for that. It’s true. 

      Lots of franchise candidates allow themselves to spin out of control when they start to go over the FDD. It’s just ink and paper. (Very important ink and paper.)

      Would-be franchisees need to make sure the opportunity they’re focused on makes sense, and as you said, “feels right, before they jump into the FDD.

      A great franchise attorney will help them understand the document, and move forward.  

      • Larryball

        I swear I just told a candidate that!  I said:

        The
        FDD is important but what you want now is the “big picture”…what is the
        opportunity, what is your role, how can I make money, is it a good fit. 
        The details of the franchise agreement aren’t important if the business model
        doesn’t make sense right?

        If you are the Franchise King…can I be the Court Jester?

        • http://www.becomeafranchiseowner.biz The Franchise King

          A jester? 

          Only if your name is Chester.:)JL

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