Franchise owners must provide potential franchisees with a franchise disclosure document. The Federal Trade Commission requires this exchange to help ensure the potential buyer understands what he or she is purchasing.
The FDD provides a range of information about the business. The FTC requires that it covers 23 points, including information on management, operations and finances. The FDD serves a couple of important purposes.
Clarity of purchase
The main purpose of an FDD is to ensure the franchisee knows exactly what he or she is buying into. It provides details about all aspects of the business so that the person can properly assess if he or she is ready to take on this business. It also helps to reveal any potential issues and could allow the buyer to realize he or she may not be a good fit for this particular business.
Success for both parties
The FDD also helps to ensure success with the agreement. Because it requires such complete disclosures, everyone goes into the deal knowing the expectations and the aspects of what will happen once the sale is final. It removes all questions and provides a fair starting point that will allow both parties to go on to success with the business.
The FDD essentially is a guidebook to the franchise. It answers questions, spells out the realities and removes any ambiguity. It provides a great start for the franchisee while also allowing the franchisor to be transparent about the deal. This document gives a clear picture of what each party will do to ensure the success of the new franchise.
