(FS6) The FDD at a Glance and Up Close
In short, the information you’ll find in the FDD includes:
- A directory of franchisees in the system
- Audited financial statements
- Company’s key staff and their qualifications
- Company-owned locations, how many are open, how many have closed
- Franchisor’s financial history, including any bankruptcies or litigations
- Information on system-wide growth
- Information on the franchise
- Legal responsibilities as franchisee
- Purchases required of franchisee such as supplies and equipment
- Responsibilities of the Franchisor to you
- The initial and ongoing fees
You will be required to sign papers and even the FDD, so remember that you should fully understand every part of the FDD and any other legal document before you sign them. If you need to, hire a lawyer to help you go over any documents just to be sure you thoroughly understand what you’re signing up for. If you don’t, you put yourself at risk of being in a relationship you’re unhappy with or with rules you didn’t realize were there. A good franchisor will always seek to inform, not confuse, their franchisee.
Between the FDD and Signing the Agreement
So you’ve done all of the preparatory work. You’ve done the research, visited the franchise, read and understood the FDD, and have decided on what it is that you want. Now what? You have to wait.
According to the federal rules set for franchisors and franchisees, there is a 14-day cooling off period. This cool off requires a franchisor to wait at least 14 calendar days after giving a franchisee the FDD to have them sign the franchise agreement or to pay any money to the franchisor in order to give you a chance to think over your decision with no pressure. In the case that you’d like to receive a copy of the FDD prior to the date set by law, you will have to make a special request.
There is an additional 7-day waiting period for the franchise agreement under some circumstances such as the franchisor making unilateral changes to the franchise agreement form. The franchisor must then provide you with a copy of the new agreement and give you 7 days to look over the changes.
Examining the FDD Up Close
When you receive the FDD, you should see 23 items inside of it every time. These are all items required by federal law to be covered when it comes to informing individuals about important company information and a number of other company-related goodies. You can feel relieved to know that part of the law states the FDDs must be written in ‘plain English’ to avoid confusion or complications on the part of the individual franchisee. However things can still be trickily written or misunderstood, so it’s important to get an experienced lawyer to help you go over the 23 items contained in the FDD. In this section, we’ll gloss over exactly what all you should expect to find.