Franchise Disclosure Document: 5 Non-Negotiables to Look For

Opening a franchise can be an exciting and rewarding business move. As a franchisee, you’ll face crucial decisions such as determining which franchise to open. One way to compare and help you make the best financial and business decision for yourself is to look at the franchise disclosure document (FDD) of the franchise you’re considering.

The FDD is not only one of the franchise legal documents required to be provided to prospective franchisees, but it is also a treasure trove of information that can make or break your decision. Here’s a breakdown of five non-negotiables you should look for in an FDD to ensure you make the best franchise investment decision.

Understanding the Franchise Disclosure Document

Before we get into some non-negotiables, let’s look at what makes up an FDD.  According to the Federal Trade Commission in a blog post in May 2023, a franchise disclosure document is a legal document every franchise is required by the FTC’s Franchise Rule to present to prospective franchisees in the pre-sale process. It’s a comprehensive guide that details every aspect of the franchise, from fees to obligations, and from earnings potential to the support provided. The FDD is standardized across the U.S., ensuring that every potential franchisee gets the information needed to make an informed decision.

Non-Negotiable No. 1: Disclosures of Fees, Royalties, and More

The main reason FDDs are required by law is so the franchisee can better understand the risk, reward, and financial opportunities of the franchise. The FDD should transparently detail all financial aspects of the business, including initial franchise fees, ongoing royalty fees, and any other expenses. It’s crucial to understand these costs fully because they impact your initial investment and ongoing operational budget. Make sure the FDD is devoid of vague financial terms and disguised or hidden costs.

Non-Negotiable No. 2: Detailed Territory Rights

Understanding your territory rights is vital. This shows you where you can operate, how many locations you may be able to operate within that area, and the parameters around opening new locations. The FDD should clearly outline the geographical area where you’ll operate and whether you have exclusive rights to this area. This information is important to avoid market saturation and competition within the same brand network, ensuring your market’s potential is maximized. This is typically found in Item 12 of an FDD.

Non-Negotiable No. 3: Franchisee Training and Support

Many franchisees argue one of the biggest advantages of franchising is the support system. The franchise disclosure document should detail the franchisee training and support offered by the franchisor. This includes initial training programs, ongoing support, marketing assistance, and any additional resources provided to help you succeed. At Penn Station East Coast Subs, for example, franchisee training is an integral part of the package, ensuring you’re well-equipped to handle your new venture.

Non-Negotiable No. 4: Brand Reputation and Legal History

The FDD provides crucial information about the franchisor’s brand reputation and legal history. Look for any red flags in the franchisor’s past, including litigation or bankruptcy. The brand’s history can give you insights into their stability and how they conduct business. The franchise’s business background can be found in Item 2, while litigation history is in Item 3, and bankruptcy in Item 4, according to the same article by the FTC.

Non-Negotiable No. 5: Realistic Earnings Potential

While not all franchisors include earnings claims in their FDD (Item 19), if they do, it’s a vital section to review. These claims show what franchisees reported earning in the previous year in business. If the franchisor has been operating for more than a year and doesn’t include an Item 19, you should inquire why.

Franchise with Penn Station East Coast Subs

Reviewing the FDD is an important step in your franchising journey. Understanding an FDD and looking for these non-negotiables is a tool to help you comprehend the nature of your investment.

At Penn Station East Coast Subs, we pride ourselves on transparency and support for our franchisees, making it an attractive option for those looking to enter the quick-service restaurant industry. We provide a complete FDD with the latest numbers and figures. With comprehensive franchisee training and a strong brand reputation, Penn Station could be the perfect franchise opportunity for you.

Interested in learning more about the exciting opportunities at Penn Station East Coast Subs? Take the first step towards owning part of a brand known for its quality and excellence. Request information today.