How to Understand the Franchise Disclosure Document

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A Franchise Disclosure Document (FDD) is a legal document required by the Federal Trade Commission (FTC) that must be provided to potential franchisees before they enter into a franchise agreement. The FDD contains detailed information about the franchise system, including the franchisor’s business experience, litigation history, initial and ongoing fees, and other important details. It is designed to help potential franchisees make an informed decision about whether to invest in a franchise.

It is required that the FDD be presented to a franchise investor at least 14 days prior to the franchisee making the commitment to purchase and execute the Franchise Agreement.  We typically recommend waiting a minimum of 16 days from the date of presenting the Franchise Disclosure Document to the date of execution.

Here are some tips for writing an effective FDD:

1.              Follow the format and structure required by the FTC: The FDD must be organized in a specific way and include certain required items. Make sure you understand the requirements and follow them closely.

2.              Be transparent: The FDD should provide complete and accurate information about your franchise system. Do not omit or downplay any negative information.

3.              Use clear, concise language: The FDD should be easy to understand, even for people who are not familiar with the franchise industry. Avoid using technical or legal jargon.

4.              Include relevant details: The FDD should provide potential franchisees with all the information they need to make an informed decision. This includes details about the initial and ongoing fees, the territory the franchise will cover, the training and support provided, and any other important details.

5.              Have an attorney review the document: An attorney with experience in franchise law can help ensure that the FDD is complete and accurate, and that it complies with all relevant laws and regulations.

It’s important to note that the FDD is just one part of the franchise process. Potential franchisees should also conduct their own research and due diligence before making a decision to invest in a franchise.  As a Franchisor, you should have a comprehensive Franchise Operations Manual, Franchise Training Program and appropriate franchise presentation materials.  A effective franchise marketing presentation consists of brochures, investment deck, application forms, NDAs and other application process documents.

There are also a wide range of states which require that the FDD has been reviewed or filed prior to a franchise presentation taking place. These franchise registration states are detailed here:

https://www.fmsfranchise.com/learn/resources/state-guidelines/