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Do I Really Need To Read The Franchise Disclosure Document?

By Frank Agin

The Franchise Disclosure Document is a key component of the franchise process since it provides important information and disclosures about the franchise opportunity. Prospective franchisees should be prepared to review this important document and simply pass off their attorney.

The franchise disclosure document, commonly referred to as the FDD is a legal document which a franchisor must give to a potential franchisees in advance of the buyer paying any money or entering into any agreements with the franchisor. It is chock full of useful information about the business opportunity, which the Federal Trade Commission has required to put the prospective franchisee on a more equal footing with the franchisor.

Nevertheless, from time to time, prospective franchises will question, "Do I really need to read the FDD?" That is like asking if you need to wash your hands after handling raw chicken. It is not absolutely required but it is probably a really good idea.

Despite it being a good idea, prospective franchisees (perhaps, even you) have their excuses for not wanting to read a FDD.

  • "But my attorney is reading it." Great. That is what you are paying her for. You still need to read it, however. While your attorney is no doubt looking out for your best interest, she is reading the FDD from a legal perspective. The FDD, however, is loaded with business considerations. These items you need to factor into your strategic and operation plans. You need to read the FDD.
  • "But it is such a simple business. I won't glean anything new from reading it." Really? Nothing? The FDD is loaded with information (legal, business, market analysis, competitive landscape, etc.). There is something there. You need to read the FDD.
  • "The investment is small; it is hardly worth the effort." It's true; there are low cost franchise opportunities that you can get into for only a few thousand dollars. But who can afford to lose a few thousand dollars or at least not make the most of it? You need to read the FDD.
  • "I don't have the time." When you get into business (whether franchised or not), you are embarking on a huge commitment. Even if it is only a part time franchise opportunity, you will invest a considerable amount of time running the business. Given that, you ought to be able to find an hour or two. You need to read the FDD.

There are plenty of excuses for passing on a good reading of the FDD. Unfortunately, none of them are very good. There are lots of great reasons to comprehend what the franchisor has included in its FDD. Find the time. Take the time. Read it.

Frank Agin is founder and president of AmSpirit Business Connections, a low-cost, part-time, professional service franchise. Prior to AmSpirit, he had a 17-year career practicing law and servicing small business clients. He can be reached at frankagin@amspirit.com.

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