A Franchise Disclosure Document (FDD) provides the critical details about a business to help prospective franchisees make informed decisions. The franchisor will issue an FDD after a buyer expresses interest in joining and fills out an application. While it’s best to have an attorney knowledgeable about commercial law review your FDD, here’s what you should look for in the document.

Essential Information You’ll Find in an FDD

1. Franchisor’s Background

Under commercial law, part of the document should disclose any past litigation or bankruptcy records along with the operational history of the business. It should include the franchisor’s career experience and any affiliated entities or parent companies. Be wary if you discover any litigation history, inflated resumes, or inadequate work experience since these could indicate the franchise is an unwise investment.

2. Fees & Restrictions

The cost is one of the most critical factors that can affect a franchisee’s decision to join. In the FDD, you’ll find initial fees, financial arrangements, royalties, and expected total initial investment. Restrictions for service and product sources are often also included.

3. The Franchisee’s Provisions & Obligations

A major part of the FDD discusses what you can expect to get out of the franchise and your obligations. You can find items about supply sources, assistance you are entitled to, copyrights, dispute resolutions, and terminations. Although commercial law requires a franchisor to provide an FDD, retaining a lawyer will ensure the accuracy of the list of supplies and services you’re supposed to receive. You must also take note of your expected participation in the business.

4. Financial Statements & Record of Franchisees  

One of the most important sections in the FDD is the financial information concerning the franchise system’s performance. This information will aid you in working out the economic expectations for your investment. You can also find a list of franchisees, so you might want to visit some of them and see the working conditions of the business for yourself.

Before you sign any franchise agreements, consult with the office of Donald L. Spafford, Jr., Attorney at Law in Honolulu, HI. Their legal team has more than 30 years of experience with business and commercial law, debt consolidation, and bankruptcy. To schedule your free consultation, call their office today at (808) 532-6300 or visit them online.