What you need to include into the Franchise Disclosure Document

June 29, 2023

Maria Misyurina

Franchising Guru Co-founder;
Guru of franchise law, contract negotiations, franchise relations & expansion.

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In England and Wales, a Franchise Disclosure Document (FDD) is a legal document that provides essential information about the franchisor and the franchise opportunity to potential franchisees. This document is typically prepared by the franchisor and must comply with specific regulations set forth by the British Franchise Association (BFA).

The Franchise Disclosure Document (FDD) includes in-depth details regarding the franchisor’s background, business model, financial statements, fees and expenses, contractual obligations, territory rights, intellectual property, training and support, and other essential aspects of the franchise relationship. Its primary objective is to provide prospective franchisees with the vital information they need to make well-informed decisions regarding their investment in the franchise. Below is the list of the vital sections that every franchisee needs to be aware of before they make an informed decision to buy into your franchise:

Initial Term

When evaluating the total investment costs, the franchisee will consider the duration of their initial franchise period. For instance, if you are granting a franchise for a period of five years and the total franchisee’s outlay costs amount to £1,000,000, it may not be financially prudent to proceed with the franchise purchase. You also need to offer renewal options for the franchise and carefully evaluate the terms and conditions you want you franchisees to comply with before you can allow them to renew.

Territory

This section contains details about the territory granted to franchisees for operating the franchise. Preferences regarding territory vary among franchisees. Having a well-defined territory offers benefits such as protection and exclusivity in opening locations where others cannot.

On the other hand, not having a defined territory can be advantageous as it provides a larger pool of real estate options for selecting a location. However, it’s important to note that in such cases, competition with other franchisees for the same sites may arise.

Initial Investment

The franchisor is required to disclose the initial investment to potential franchisees as part of their transparency and compliance with regulations. Disclosing the initial investment helps provide a clear understanding of the financial obligations and costs involved in starting and operating the franchise.

By providing information about the initial investment, the franchisor enables potential franchisees to make informed decisions and evaluate whether they have the necessary financial resources to enter into the franchise opportunity. It allows individuals to assess the feasibility and profitability of the business venture and helps avoid any surprises or misunderstandings regarding the financial commitment required.

Full disclosure of the initial investment also promotes transparency in the franchisor-franchisee relationship and ensures that both parties have a clear understanding of the financial aspects of the franchise agreement. This transparency is crucial for building trust and maintaining a mutually beneficial partnership between the franchisor and franchisee.

Your brand uniqueness and your Business experience

Financial performance representation

Disclosure of financial performance representations helps potential franchisees make informed decisions and evaluate the potential return on investment. It enables them to assess the feasibility of the franchise, understand the revenue potential, and estimate the costs and expenses associated with running the business. This information is crucial for potential franchisees to conduct due diligence and make sound financial decisions regarding their investment.

When selling a franchise, it is crucial to recognize that you are establishing a long-term business partnership with the franchisee. In order to foster transparency and enable the franchisee to make an informed decision, it is essential to provide full disclosure of relevant information.

One critical aspect of this disclosure process is the creation of a comprehensive Franchise Disclosure Document (FDD). This document serves as a key resource for potential franchisees, providing them with detailed and informative content about the franchise opportunity.

By working with us, we can assist you in crafting an FDD that covers all essential aspects of the franchise. We will ensure that the document includes comprehensive information about the franchisor’s background, business model, financial performance, contractual obligations, territory rights, intellectual property, training and support programs, and any other pertinent details.

To ensure the successful launch and operation of your franchise, we strongly encourage you to reach out to us. Our expertise in creating thorough and effective FDDs will help you avoid potential problems both in the present and in the future. Together, we can build a strong foundation for your franchise business. Get in touch with us today!