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You’re ready. You’ve built your business, pouring countless hours into it. Now, you’re thinking about expanding. What better way to scale your business than to offer franchise opportunities? But before you’re ready to talk to franchisee candidates, before you can even present your business to franchise brokers, you need to ensure that all of your franchise documents are in order. Specifically, you need a franchise disclosure document (FDD).
While Pinnacle Franchise Development does not write FDDs, our team is ideally positioned to provide a thorough review of franchise development documents. Partner with Pinnacle, and we’ll make actionable recommendations for your franchise disclosure agreement that will facilitate an effective presentation of your brand. If you still need assistance getting started with your FDD, we have an extensive network of franchise attorneys that we are happy to refer you to.
A franchise disclosure document is a legal document containing essential information about the franchise opportunity and the business relationship between the franchisor and franchisee. The FDD explains the roles of each party and the expectations. In practical terms, it highlights exactly what is offered to the franchisee (such as training, support, and so on) in exchange for the franchisee’s investment. All franchisors are legally required to make this franchise disclosure. A franchise disclosure document enables a potential franchisee to conduct their pre-investment due diligence. By carefully assessing the information provided in the franchise documents, the potential franchisee can make an informed decision about making an investment in the franchisor’s business.
Franchise disclosure documents aren’t just legal documents; they are also legally required. They were previously known as Uniform Franchise Offering Circulars (UFOCs). In 2007, however, the Federal Trade Commission (FTC) revised the requirements, and the document is now referred to as the FDD. Under current regulations, franchisors must provide the FDD, and franchisees must have a 14-day review period (starting upon receipt of the FDD) before signing a franchise agreement.
Courting potential franchisees is somewhat similar to marketing your brand to consumers. You want to present your brand in the best possible light; however, you also need to abide by honesty and transparency standards in your communications. When you partner with Pinnacle Franchise Development, our franchise marketing team meticulously reviews your FDD before developing a proposal.
Once you sign with Pinnacle, we’ll work with you to develop an effective strategy, including determining exactly when and how the FDD will be presented to the potential franchisee during the sales process. Our team may make recommendations for your franchise disclosure document that we feel would allow our franchise sales team to present your brand more effectively. We pay particular attention to the items pertaining to litigation, investment, and earnings claims, as these are the areas that are most closely scrutinized by both brokers and franchisee candidates. Our priority is the presentation of clear, concise, and easy-to-understand numbers.
Note that federal regulations require franchisors to update their FDD each year (within 120 days of the fiscal year end). In addition, franchisors must renew their state registrations annually. Pinnacle reviews the franchise disclosure documents of our clients each year prior to annual renewal and may make additional recommendations for modifications at this time.
The FTC’s Amended Franchise Rule requires franchisors to include 23 items in the franchise disclosure document. Although the specific content under each item will vary, depending on the franchisor, no item can be missing from the FDD. These required items are as follows:
Item 1: The franchisor and any parents, predecessors, and affiliates
Item 2: Business experience
Item 3: Litigation
Item 4: Bankruptcy
Item 5: Initial fees
Item 6: Other fees
Item 7: Estimated initial investment
Item 8: Restrictions on sources of products and services
Item 9: Franchisee’s obligations
Item 10: Financing
Item 11: Franchisor’s assistance, advertising, computer systems, and training
Item 12: Territory
Item 13: Trademarks
Item 14: Patents, copyrights, and proprietary information
Item 15: Obligation to participate in the actual operation of the franchise business
Item 16: Restrictions on what the franchisee may sell
Item 17: Renewal, termination, transfer, and dispute resolution
Item 18: Public figures
Item 19: Financial performance representations
Item 20: Outlets and franchisee information
Item 21: Financial statements
Item 22: Contracts
Item 23: Receipts
We strongly urge franchisors to contract with an experienced franchise attorney to draft the FDD. If you would like to work with Pinnacle, but do not yet have an FDD, we can refer you to trusted franchise attorneys and advisory groups. Having an experienced attorney draft your FDD will ensure that it is in full compliance with FTC regulations.
When you’re ready to take your business to the next level of success, it’s time to see what our experienced team can do for you. Contact Pinnacle Franchise Development to request a consultation with our franchise development professionals, learn more about our franchise development services, and discuss how franchise sales outsourcing can scale your company. If you don’t yet have the necessary franchise documents, we’ll be happy to refer you to our trusted franchise attorneys and advisory groups.