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You have the to require – and get – a duplicate of the FDD after the franchisor has received your application and agreed to contemplate it. Indeed, you might get a duplicate of the franchisor’s FDD before you may spend any money to research the franchise offering.
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The franchisor may give you a copy of its FDD on paper, via email, through a web page or on the disk. The cover of the FDD must provide information about the available types. Make sure you have a copy of the FDD in a format that is convenient for you, and keep a copy for research. Read each one of the 23 numbered “Items” in the FDD. Don’t be shy about asking for explanations, clarifications and answers to your questions before you commit. Item 1 lets you know how long the franchisor has been around business and its likely competition.
It also lets you know if there any legal requirements unique to the franchised business, just like a requirement that you will get a special permit or enable. This can help you understand the costs and risks you will need on if you purchase and operate the franchise. Item 2 recognizes the professionals of the franchise system and explains their experience. Pay attention to their general business backgrounds, their experience in owning a franchise system and how long they’ve been with the franchisor. Item 4 discloses whether the franchisor or its predecessor, affiliates or some of its executives have been involved in a recent personal bankruptcy.
If the franchisor or its predecessor or affiliate has declared personal bankruptcy, carefully review the franchisor’s financial claims in Item 21 of the FDD to find out if the franchisor is financially capable of providing the support services it guarantees. Consider having an accountant review the required financial statements too. These things describe a few of the costs involved in starting and operating a franchise, including debris or franchise fees which may be non-refundable, and costs for initial inventory, signals, equipment, rentals or leases. It explains ongoing costs also, like royalties and advertising fees. You’ll need to research other initial and ongoing costs that aren’t explained in Items 5-7, such as the cost of accounting and legal help.
It may take several months to begin your business, and it might take more than a season to break even. Some franchises never break even. Season as well as your personal living expenses for up to two years Calculate your operating expenses for the first. Compare your cost estimates for the franchise with what other franchisees in this technique and competing systems have paid. An accountant may help you evaluate this given information.