The Franchise Disclosure Document Details Important Information for Prospective Franchise Owners
A Franchise Disclosure Document (FDD) is a 100–200-page legal document that details important information about a franchise. Before you consider investing in a franchise, you need to read the entire document, ideally with the help of a franchise attorney or broker. In order to provide you with all the information that you need to make an informed decision, all franchises have a FDD.
Under Federal Trade Commission regulations, the Franchise Rule states that franchisors must disclose the FDD to the prospective franchise owner two weeks prior to the signing of the franchise agreement or payment of any fees. The 14-day period commences when the franchisee signs the franchise FDD receipt page contained in Item 23.
Item 19 of the Franchise Disclosure Document
There are 23 items in the FDD. Item 19, which discusses financial performance, is very important but some brands leave it out. It can be a bit controversial and elicit fear in some franchisors because it answers the question most prospective franchise owners have: How much money can I make with this franchise? This section of the disclosure document shows you how profitable a franchise can be. Since there is no standard format for this section, it significantly varies from brand to brand.