Before you buy a franchise, it’s important to research different systems to see which brands best align with your goals, attributes, capabilities, and assets. As you work through this research phase, you’ll have to synthesize information from a number of different sources: active franchisees, franchisor websites, franchise advisers, and even the dreaded Franchise Disclosure Document (FDD).
In today’s post, the FranNet team offers some FDD insights to make the most of this invaluable resource. Read on to broaden your understanding of this document, and to learn what to look out for as you compare different systems.
FDD 101: What does a franchise disclosure document do for me?
The franchise disclosure document was created to give prospective franchisees concrete information pertaining to the inner workings of the system.
If you are looking to buy a franchise in Ontario, Alberta, Manitoba, New Brunswick, or Prince Edward Island, know that the franchisor is obligated to provide disclosure documents according to provincial legislation. Once you’ve received yours, you’ll have a minimum of 14 days to review the document.
So what can you expect to find inside the FDD?
Designed with franchise research in mind, this document typically contains the following:
- Franchisor background information, including an overview of any relevant litigation, civil actions, convictions, or bankruptcies: Knowing the legal history of your franchisor can shed light on potential flaws, conflicts, or loopholes in the system, and also give you a better idea of the brand’s long-term staying power. If you wish to look further into the outcomes of certain cases or lawsuits, you can take note of the names of the parties involved, then search public records of the legal proceedings.
- Description of key players within the system: This includes franchise officers, administrators, and high-level executives. Identifying the “movers and shakers” will give you much more research ammunition to use during the 14-day consideration period. Look them up and learn what you can to see if their philosophies match your own.
- Summary of the system’s active trademarks and other intellectual property: Reviewing the franchise system’s trademarks and intellectual property rights will give you a clear idea of what distinguishes this brand from the competition. In other words, these details tell you what this brand does differently. Trademark information can also give you an idea of their branding success so far; if the trademarked items sound familiar, their branding campaigns are going well. On the other hand, if you’ve never heard of their trademarks despite having closely studied their industry, consider it a red flag.
- Summary of the associated start-up costs and fees: This is what most people consider the most valuable information in the FDD. Keep in mind that individual expenses can vary depending on your area, assets, and training requirements.
- Summary of training and ongoing support services offered by the franchisor: Before you sign on, you’ll have a chance to review the extent of support services your franchisor provides. Pay close attention to these details, especially if you are venturing into an unfamiliar industry!
- Contact information for current and former franchisees: One of the best ways to learn what to expect from this franchise is to get in touch with those who are already involved. This contact information is invaluable, and we encourage you to make the most of it; pick up the phone and start asking questions!
- Financial statements and other relevant fiscal information: Some franchisors will include information regarding projected earnings, but they aren’t required to. Instead, you will usually find information about the franchisor’s performance during the recent fiscal year, as well as historical gross sales of anonymous individual locations.
This is just an introductory piece; to help you decipher the FDD, or speak directly with a franchise adviser.
About FranNet Canada
FranNet is a 29-year-old company with roots in the U.S. Its purpose being to nurture every entrepreneur’s dream of business ownership. We actively employ a specific profiling and consultation method. This method is geared to each investor with a specific business model and based on franchise trends typically found in Toronto, Ontario, Vancouver, British Columbia, or Calgary, Alberta. The most lucrative Canadian franchise opportunities are waiting for you. For more details, schedule a free consultation.