Updated January 2025
Before buying a franchise, it’s important to research different brands to see which one best aligns with your goals, capabilities, and assets. There are several resources available to you such as speaking with existing franchisees or a franchise advisor. Another vital resource is the Franchise Disclosure Document (FDD), which is a legal document that offers key information to help potential franchisees make an informed decision.
What is Included in a Franchise Disclosure Document (FDD)?
The FDD was created to give prospective franchisees concrete information pertaining to the inner workings of the franchise system. Once received, a franchisee has at least 14 days to review it. The document typically contains the following:
- Franchisor background information – Overview of relevant litigation, civil actions, convictions, or bankruptcies. Knowing this can shed light on potential flaws, conflicts, or loopholes in the system, while giving you a better idea of the brand’s long-term staying power.
- Description of key players within the system – This includes franchise officers, administrators, and high-level executives. Identifying the “movers and shakers” will give you more research ammunition to use during the 14-day consideration period.
- Summary of active trademarks and other intellectual property – Reviewing this will give you a clear idea of what distinguishes this brand from the competition.
- List of associated start-up costs and fees – Most people consider this 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 – Before you sign the franchise agreement, you’ll have a chance to review the extent of support services your franchisor provides. Pay close attention to these details!
- Contact information for current and former franchisees – One of the best ways to learn is to get in touch with those who are already involved. 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, most franchisors provide data on their recent fiscal performance and historical gross sales from anonymous franchise locations.
Are FDDs Required in Canada?
While FDDs are recommended in Canada, they aren’t required in every province. The following six provinces do have specific franchising legislation:
Potential Red Flags in an FDD
The FDD is an invaluable resource, so it’s important to take advantage of it and thoroughly review the information before making a commitment. A few things to watch out for include:
- Excessive Litigation – A high volume of legal disputes involving the franchisor.
- Unclear Financial Projections – Lack of transparency or overly optimistic claims.
- Restrictive Terms: Limitations on territory, pricing, or supplier options that could hinder profitability.
- Weak Training and Support Systems: Inadequate resources for franchisees to succeed.
- High Turnover Rates: A large number of franchisees leaving the system.
These are strong signals to pause and reconsider your franchise options carefully. You want to join a franchise that’s easy to work with, gives you clear expectations, sets you up to succeed, and has a good reputation among its network of franchisees.
4 Steps to Take When Reviewing an FDD
- Engage a Franchise Lawyer – A legal expert that specializes in franchising can help you understand the various details in the FDD.
- Conduct Thorough Research – Speak with existing franchisees to corroborate what you see in the FDD and confirm the brand’s reputation.
- Ask Questions – It’s always worth seeking clarity if there are any ambiguous terms or sections in the FDD.
- Compare Options – You don’t have to limit yourself to one option. Take the time to compare the FDD with those from other franchise systems in the same industry.
Thinking About Buying a Franchise?
A thorough FDD review is key to making a smart franchise investment. If you’re ready to explore your franchise options in Canada, FranNet is here to help. Our expert franchise consultants can help match you with the right franchise brand and walk you through the process from start to finish. Schedule your free consultation to get started!