(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.
- The Franchisor, its Predecessors, and its Affiliates
- Business Experience
- Initial Franchise Fee
- Other Fees
- Initial Investment
- Restrictions On Sources Of Products And Services
- Franchisee’s Obligations
- Franchisor’s Obligations
- 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
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.
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.
Click the book!
Important! If You're About To Buy A Franchise, We Need To Talk
(Before You Send In Your Money & Sign Your Contract)
"I was pretty focused on a particular franchise opportunity when I reached out to Joel Libava. In the course of a 1-hour conversation, Joel was able to ask questions and provide direct advice to help clarify the process for me and help guide me through the next steps in my vetting process. He even put me in contact with other professionals who were able to help educate me further in my particular industry. The time and money were well spent."
-Brian Grayson, Cincinnati