Interested in buying a franchise but not sure it’s the best decision for you? Determining a franchise’s strength and weakness is a good place to start.
More and more people are looking into owning a franchise. If you are one of those people, the first challenge you will face is finding the right franchise business that suits your talent and personality – the one that you hope will bring you financial success and job satisfaction. There are many franchises from which you can choose, but as with any other investment, the burden is on you to research a franchise carefully; you are fully responsible in making sure that you are investing your money wisely. You cannot, and should not, rely on what a salesperson is telling you. Unfortunately, there are always salespeople out there that will tell you what you want to hear, which may not be 100% accurate, just to close the deal.
As you begin your due diligence on a franchise in which you have interest, there is one document that would be very helpful to you. It is called the Franchise Disclosure Document (“FDD”). The FDD is a legal document that the Federal Trade Commission (“FTC”) requires franchisors to provide to prospective franchisees. Its purpose is to protect you, the future franchisee, by providing you with the information you need about the franchisor. The salesperson may tell you only the wonderful things about the franchisor but the FDD will show you the facts. Franchisors are required under FTC rules to update and register their FDD annually so you can get the most recent information regarding the franchisor.
The FDD contains 23 categories of information about the franchisor; it will give you a full picture of the franchise you are considering – its strengths and its weaknesses. Depending on the volume of information that a franchisor needs to disclose in each category, the FDD, when given to you, can be intimidating. You might feel overwhelmed just looking at the number of pages you have to go through and the volume of information you have to digest. It is often tempting to just skip the reading and believe the salesperson. In case you are forgetting, the salesperson’s goal is to sell. It’s his job. It’s your job to protect your interest and your investment, so don’t always rely on the salesperson. As intimidating as it is, read the FDD!
The franchisor is required to provide you a copy of the FDD at least 14 days prior to you executing a franchise agreement, so take some time and get to know the franchisor.