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If you’re getting into franchising, then a Franchise Disclosure Document (FDD) is one of the most important and informative pieces of paperwork you’ll encounter. You need to know what it is and what it can give you.

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An FDD Overview

Any franchise has to produce an FDD and provide it to entrepreneurs who are considering joining that franchise. It’s a legally defined document that fulfills the franchisor’s obligations to inform potential franchisees about what they’re getting into.

An FDD outlines many of the most important aspects of a specific franchise. Almost all of your questions and concerns about that particular franchise operation should be answered across its 23 sections.

The Franchising Deal

The most obviously useful information tells you about the deal you’ll get if you join the franchise.

This includes sections on finance, covering the fees associated with the franchise and the likely costs of getting an outlet set up. Though these costs can vary from the figures shown, it’s one of the best sources for costing your franchise business.

The FDD also sets out the limits of the franchising agreement. It states the obligations and restrictions set on a franchisee, the length of the franchise term, and any rules around renewal. If there are territorial rights that will protect or limit your outlet, then they will be set out.

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The assistance the franchisor offers is detailed in the FDD. This includes any financial assistance, as well as training and marketing support.

The Bigger Picture

On top of this, the FDD gives you information you’ll need to evaluate the franchising company and decide whether it’s for you. This includes the company’s history, management structure, legal status, and any litigation history. Recent financial statements may be included, along with the contents of the operations manual.

There should be data on existing franchises, to help you see how the franchise is performing. This includes how many outlets currently exist, and any openings, closures, or transfers in the past year, for a sense of the company’s direction.

The FDD will also provide a list of current and past franchisees, and their contact details. You can use these to get first-hand accounts of what it’s like to work with the franchise.

A Critical Document

Given all the ground it covers, an FDD is a critical document in deciding whether to join a franchise. You should make it a central part of your research, and never join a franchise that doesn’t provide one.