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pThe Franchise Disclosure Document (FDD) is one of the most important tools to utilize when assessing a franchise opportunity. nevertheless, it shouldnrsquo;t be used exclusively for a franchise assessment. The FDD by itself doesnrsquo;t have all the information requisite to make an informed decision on the viability of a franchisersquo;s a href=http://www.businessconsultingabc.com/Writing_An_Effective_Business_Plan.htmlBusiness Plan/a and a href=http://www.businessconsultingabc.com/Developing_and_Writing_A_Winning_Marketing_Plan.htmlMarketing Plan/a; however, if used in conjunction with a good Franchise Checklist, the FDD is certainly a valuable due diligence tool./p
p The Federal Trade Commissionrsquo;s Uniform Franchise Offering Circular (UFOC) has been replaced by the Franchise Disclosure Document. The FDD differs from the UFOC in three main areas./p
ul
liInformation in Tabular Format for easy comparisons between different Franchisers./li
liPost rsquo;79 changes in the Franchise Business, such as different hardware and software requirements./li
liEarnings Claims by Franchisers, called Financial Performance Representations, are more informative and valuable to prospective franchisees./li
/ul
p You will find the FDD is organized in a fashion to easily compare different franchises. It is uniform and has 23 sections or what I call items. I highly recommend you totally read the entire FDD, making notes in the margins of questions and areas to explore. Certain sections of the FDD should be assigned to your Attorney, Accountant and Business Advisors./p
pstrongFDD Items #1-4:nbsp; History/strong/p
pstrongemItem 1:/em/strongnbsp; Franchiser business history, including predecessors and affiliates.nbsp; It is the key overview of the franchiser./p
pstrongemItem 2:/em/strongnbsp; Background data on key officers, directors and employees, including corporate management.nbsp; Summarizes their work experience of the past five years, along with experience serving as officers/ directors of other companies.nbsp; This is key information as it will show how much experience Franchiser Corporate has in the business, which translates often into franchisee success./p
pstrongemItems 3 and 4:/em/strongnbsp; Past or current litigation or bankruptcy on the part of the franchiser and its key personnel.nbsp; Have your Legal Advisor review./p
pstrongFDD Items #5-7:nbsp; Fees and Costs/strong/p
pstrongemItem 5:/em/strongnbsp; All initial fees charged to begin the business./p
pstrongemItem 6:/em/strongnbsp; Other fees charged in subsequent operation, such as royalty, advertising, renewal and transfer fees./p
pstrongemItem 7:/em/strongnbsp; Breakdown of every component of the franchiseersquo;s initial investment to include an advertising allowance and operating capital reserves.nbsp; Provides ranges of potential costs, which you will need to firm up with existing franchisees and through your due diligence research.nbsp; Determining the most precise projection of costs for your territory/ location and circumstances is key./p
pstrongFDD Items #9,11 and 15:nbsp; Contractual Obligations/strong/p
pstrongemItem 9:/em/strongnbsp; Franchisee obligations, including business responsibilities and legal obligations.nbsp; Carefully review this section with your Franchise Attorney and Consultant./p
pstrongemItem 11:/em/strongnbsp; Franchisor contractual obligations.nbsp; This is very important as it outlines what yoursquo;ll receive in exchange for the franchise fees charged, including pre-opening and on-going assistance, education programs, franchise systems and advertising programs.nbsp; This is a good section to review your Franchise and Business Consultants and works well in conjunction with our Suggested Franchise Due Diligence Checklist./p
pstrongemItem 15/em/strong: nbsp;Franchise personal obligations and expectations in the franchise operation.nbsp;/p
pstrongFDD Item #12:nbsp; Territory/strong/p
pProtected or Exclusive territory terms if offered. Give this very careful review./p
pstrongFDD Item #17:nbsp; Exit Strategies and Dispute Resolution/strong/p
ul
liRestrictions on Renewal, Termination or Transfer of the Franchise Agreement./li
liDispute resolution methods, including Binding Arbitration./li
liShould review this section with your Franchise Attorney./li
/ul
pstrongFDD Item #19:nbsp; Financial Performance/strong/p
ul
liFranchiserrsquo;s representation of unit financial performance./li
liThis section will not answer the franchiseersquo;s question about how much money he or she can make.nbsp; To answer this question, utilize your Due Diligence Checklist, the Marketing Section, to determine what your prospective market will translate into financial projections.nbsp; Working closely with existing Franchisees in your area will help firm up your projections./li
liThis item will provide you initial clues to apply in determining what your area can produce in terms of prospective franchise profits./li
liThe disclosure contains three types of information:
ul
liRevenue/ Expense Data/li
liAssumptions used in the Financials/li
liDisclaimers about the usefulness of the information /li
liIt is important to review the assumptions behind the franchiserrsquo;s financials in order to accurately understand, as well as, apply the financial information given.nbsp; For example, the data may be too dated to be useful for your particular analysis and projections./li
/ul
/li
li Review this financial information with an accountant, along with your franchise and business advisors to accurately project what this franchise can generate in revenue and profit for you and your territory./li
liWhen speaking with existing franchisees, be sure to verify both the franchiserrsquo;s financial data and your own market research and financial projections to determine realistic expectations of market potential and financial results./li
/ul
pstrongFDD Item #20:nbsp; Existing Unit Data/strong/p
ul
liInformation about the number and locations of existing franchises./li
liThis includes information from units that have closed or transferred ownership./li
liThis item is valuable for your market research./li
/ul
pstrongFDD Items #21 and 22:nbsp; Financial Statements and Contracts/strong/p
pstrongemItem 21:/em/strongnbsp; The Franchiserrsquo;s audited financials for the previous three years. An indication of the Franchiserrsquo;s financial strength and stability. Review with your Accountant./p
pstrongemItem 22:/em/strongnbsp; Franchisee Contracts, including the Franchise Agreement and other contracts covering personal guarantees, real estate assignments, advertising, co-op rules and conditions, territorial development schedule, etc./p
pstrongOther Important Rules, Restrictions and Information/strong/p
pstrongemItems 8,10,13,14,16,18 and 23/em/strong/p
ul
liWhere you can purchase supplies./li
liWhat products and services a franchisee can offer./li
liPersonal participation obligations./li
liFinancing Programs/li
liPublic Figures or Celebrities associated with the Franchiser./li
liStatus of trademarks patents and copyrights./li
liState particular rules, regulations and information./li
/ul
pBe sure to review the FDD with your a href=http://www.businessconsultingabc.com/ target=_blankBusiness Consultant/a, Franchise Consultant, Franchise Attorney and Finance Consultant. Objective and experienced advice is critical in determing if this is the right franchise for you./p
pstrongAbout The Article Writer ~ Frank Goley ~ Business Consultant/strong/p
pstrongemFrank Goley/em/strong has a diverse and deep experience base as a business consultant, business turnaround consultant, business plan expert, business plan writer, business coach, small business consultant, business planner, marketing consultant, online marketing consultant, seo consultant, and business plan consultant for strongemABC Business Consulting/em/strong. Frank is considered an expert in writing, developing and implementing business plans, business turnaround plans, financing business plans, marketing plans, strategic plans and web marketing plans. Frank offers comprehensive business consulting, business coaching, business turnaround consulting, along with web seo, web development and web marketing consulting, to small and medium size companies. Frank is the author of a business plan book, strongThe Comprehensive Business Plan Workbook/strongem ndash; A Step by Step Guide to Effective Business Planning/em, and he has over 50 published articles and e-books on business success strategies. He also writes the Business Success Strategies Blog and publishes the Business Success Newsletter./p