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Many entrepreneurs are starting their franchises at different locations because it is a sure-shot way to mushroom a business. Well, let us tell you that franchising a business is not an easy task. As a franchisor, you need to work with your fingers to the bone to search for suitable franchisees for your franchise units. Moreover, you need to train and guide your franchises so that they can operate business smoothly. Apart from training and guidance, you need to craft the main element of the franchising known as Franchise Disclosure Document(FDD).
FDD is basically an informative book that is provided to franchisees at least 14 days before signing an agreement. Therefore, it is your duty to make a clear and structured FDD. This way, franchisees can make decisions regarding whether they are ready to enter into a contract with you or not. In this article, we have jotted down some important items you must include in your FDD.
Your Franchise Disclosure Document must be written in such a manner so that your prospective franchisees can understand it easily. Doesn’t matter which type of franchising you are operating, whether it is a coaching institute franchise, clothing franchise or restaurant franchise, a simple and clear FDD plays a vital role in flourishing your business. Hence, we can say that crafting FDD is equally important for every sort of business. You might be brooding about what to include in an FDD and what not to include in it. Don’t worry! Keep on reading this article to make an appropriate franchise disclosure document for your business.
While making a franchise disclosure document for your business, make sure to include the below-mentioned items in it:
Initial fees and other fees
You need to clearly mention the fee in your franchise document. Mentioning everything before a contract can save you from disputes as well as negotiations. A franchise fee is basically an amount your franchisee needs to pay for purchasing the company’s intellectual property rights, products and brands. Apart from it, don’t forget to mention the royalty fee which is basically a percentage of sales of a franchise unit per month.
Estimated initial value
One of the most important aspects to mention in FDD is to clearly state the amount of capital your prospective franchisees need to commence a franchise unit. Be careful while writing and make sure to mention the realistic amounts in the FDD. In case if you dictate any false statement in a document, you might trouble yourself in major disputes. Besides this, assure your franchisees that you will support them in arranging finances to start a franchise unit. However, it is better to link with franchisees who are financially stable.
Restriction on the sources of products and services
Franchisors can sell your products/services to their franchisees till the time they disclose that they are making profits from the sales. So, as a franchisor, you also need to reveal the amount of money you are deriving from requisite products. Hence, the main emphasis here is to ensure that you are completely disclosing all the forms of revenue generated through franchise sales.
Financial performance representatives
Well, it is not mandatory to give your franchisees details and information of sales and earnings. Still, if you choose to do so, then you will need to provide this information in the FPR section. Let us tell you, the FPR neither needs to be particularly in the form of financial statements nor is it essential to make the FPR according to GAAP(Generally Accepted Accounting Principles). Hence, there is a greater deal of flexibility to choose what you want to disclose.
Franchise information
Another imperative element of FDD is to clearly mention the details of current franchisees. In addition, ensure to mention the number of franchise units you have opened till the date. Moreover, it is crucial to mention the absolutely true details of the franchise units along with the correct details of your current franchisees. Give your prospective franchisees authority to contact current franchisees. It can aid in proving a true image of your business to your prospective franchisors. This way, they can ask some valid questions from the franchisees to clarify their doubts. It can help them make an informed decision.
Franchisee’s responsibilities
It is extremely important to let your franchisees know about the roles and responsibilities they need to fulfill after opting for a franchise. Strictly mention in the FDD that franchisees need to adhere to the terms and policies of the franchise agreement. Apart from it, it is also equally important to make them aware that they can’t implement their plans without the permission of the franchisor. It is better to associate with franchisors who can efficiently follow the rules and regulations. It will help you build amicable relations with your franchisees.
For instance, if you are running an education franchise, then make it clear whether the prospective franchisee is able to abide by the terms and conditions to provide quality coaching in SSC CGL, SBI PO, IBPS clerk etc. It will maintain your brand image and take your business to new heights.
Conclusion
Well, make the FDD according to your needs while keeping in mind what suits you best. Moreover, don’t forget to include the above-mentioned important point in your FDD. It might be arduous for you to create an appropriate FDD all alone. In case of any difficulty, you can take legal advice from a lawyer or some leading franchisors.
