Important Elements of Franchise Disclosure Document
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Important Elements of Franchise Disclosure Document

by Eric
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Most of the entrepreneurs find franchising as an excellent business model to proliferate their business. Well, it’s easier said than done ! No doubt, franchising can help you to expand your business and earn a wide market range. But, you need to do the painstaking work of finding prospective franchisees for your business unit. Also, you need to conduct several training sessions to brush up the knowledge of your business associates. So, how does a franchise start? The franchisors bind every franchisee legally with them by signing a contract. Before they enter into a contract, franchisors represent a Franchise Disclosure Document (FDD) to their franchisees. After getting convinced with the terms and information of the document, franchisees can sign the contract with their franchise. 

 

You might be thinking, what is a franchise disclosure document? This is basically an informative document that you should provide to your franchisees 14 days prior to signing any contract or charging fee. Note that the day you offer this document won’t be included in those 14 days. Additionally, there’s no need to submit this document with any legal agency. You can simply give it your franchisee and ask them to read it meticulously. If you are finding franchisees for your educational franchise in India, then make sure you are providing them this document. There are several elements that should be a part of this document. So, go through this article to know those elements.

Here is a list of important things that should be included in a Franchise Disclosure Document (FDD):

 

  • Discloses corporate information

This is highly important to reveal every important corporate information in the franchise disclosure document. It can help a franchisee in knowing the nitty-gritty of the business. Also, this can play a key role in decision making for a franchisee. As a franchisor, you should be honest enough to disclose every little detail of the business. 

The corporate information of a business may include the financial statements, list of stakeholders etc. Make sure you are representing the true and fair financial position of the business. Being honest and direct with your franchisee from the beginning can help you maintain amicable relations. 

 

  • Business experience

The next important element that should be mandatorily be a part of your franchise disclosure document is business experience. Your franchisee must know about your experience and achievements. Additionally, you need to inform franchisees about the experience and qualifications of your management team. It can help franchisees in ascertaining the standard of your business operation. Also, you can give guidelines for franchisees to hire only well experienced staff to their business units. It can aid in maintaining the brand consistency and quality of products & services. 

 

  • Initial fees and other fees

Which thing can become the major reason for dispute between franchisor and franchisee? The amount of initial fees. So, it’s better to clearly mention that fee in the financial disclosure document. Make sure you are clearly stating the up-front fee and any additional charges. This way a franchisee can easily determine the amount he/she needs to invest in your business. Moreover, you’ll be free from the stress of disputes or disagreements. 

 

  • Minimum initial investment

You need to make it clear to your franchisees about the minimum initial investment. No doubt, investing in a franchise would require less amount as compared to starting a self-owned business. But, a franchisee should have enough money in pocket to maintain the working capital for business operations. Also, it is the responsibility of the franchisee to find a suitable location for his/her firm and spend money on it. As a franchisor, you can advise them while choosing a location for their firm. 

 

  • Product and service source restricts

As a franchisor, you have the right to sell goods and services to your franchisee. However, it is essential to disclose the revenue you earned by selling those products and services. Note that you can’t hide the profit or revenue you earned by selling products to your franchisee. It can cause noxious issues between you both. So, why burden yourself with disputes? Be direct and specify everything in detail in the franchise disclosure agreement. This way you can easily earn the respect of your prospective franchisees. 

 

  • Franchisee’s obligations

Trusting an individual with your brand is really hard. So, you can mention some rules and regulations for your franchisee. You can ask for experience, educational qualification, financial stability etc. Be clear with your franchisee about your needs and demands. It can help franchisees make a decision whether they want to invest in your franchise or not. Also, you can specify terms and conditions regarding termination of the contract. It is compulsory for a franchisee to abide by the obligations of the contract. In case he/she disagrees with the terms, you can choose not to enter in contract. 

Are you finding capable associates for your coaching institute franchise? If yes, present a FDD document that includes all the necessary details of business. It can help you pick the best fit franchisees for your business.

 

Conclusion

Every entrepreneur would love to run a franchise without disputes and legal troubles. To ensure this, it is important to present a franchise disclosure document to franchisees. There are several things that should be a part of this document. Some of the essential things are mentioned above. Apart from above things, franchisors can include financing, trademarks, patents, copyrights etc. in the document. Everything should be explained clearly in the document. Try not to leave room for doubt. Be clear and specific. This way you can easily associate with perfect individuals and grow your business. 

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