Step One of “How to Franchise Your Business”:
What Is The Franchise Disclosure Document (FDD)?
The first step in learning how to franchise your business involves the preparation of a Uniform Franchise Disclosure Document, most commonly referred to as an “FDD.” “The Federal Trade Commission (FTC) requires that a franchise cannot be offered or sold in any state unless the buyer has been presented an FDD in plain, easily understood language, describing the essential facts about the franchised business. To make it easier for franchisors to comply, the FTC has set out 23 categories of information to be explained. Each category contains a number of more detailed inquiries. The sum total of all of these requests provides a prospective franchisee with most of the facts needed to make an intelligent decision about the purchase. In addition, the FTC encourages each prospect to discuss the FDD with an attorney, accountant or other business advisor. The buyer is not permitted to sign an agreement or make a payment for the franchise until after 15 days of being given the FDD.
Since there is no federal requirement for registration of the franchise offering, the FDD is not reviewed by any government entity, except in the states of California, Hawaii, Illinois, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia and Washington. Each of those states regulates the offer and sale of franchises within their jurisdiction, and sets forth a review process before accepting your application and franchise documents for registration. The states of Indiana and Wisconsin require the FDD to be part of the registration application, but do not perform a review of the documents. Florida, Kentucky, Nebraska, Michigan, Texas and Utah require completion of an exemption form, but no other documents. In all other states the franchisor is on the “honor system” regarding compliance with federal law.
Unless the franchisor has an FDD prepared by an attorney there is no reason to think that the document would satisfy the FTC requirements. The rules are very complicated and any company gambling on “form” FDD’s or any other non-attorney approved documents is simply playing with fire and risking very expensive fines and other legal consequences.
The Franchise Company charges a fee of $19,250 for preparation of the FDD, all necessary agreements, and full assistance in producing an operations manual and advertising brochure, and sales coaching through the sale of your first franchise. That price includes the fee of an experienced and professional attorney specializing in franchising.
If you are willing to take a chance on form paperwork not specifically designed for you by an attorney, and willing to miss out on the business advice we provide, then I am grateful that you are not our client.
Please read the other sections of this web presentation so that you can fully understand the value of the services we provide. We encourage you to list the cost of these services and compare with prices from any other franchise consulting firm.