Many entrepreneurs franchise their business. Do you know why? Because franchising is a sure shot way to mushroom your business. If you are a franchisor, then let us tell you that opening franchises of your brand is not going to be easy. First, you need to burn midnight oil in search of suitable franchisees. Also, it is your responsibility to train and guide your franchisees. Apart from training and guidance, the main constituent of franchising is Franchise Disclosure Document (FDD). This is an informative book which you provide to your franchisees at least 14 days before signing the contract. You need to provide your franchisees with FDD so that they can make decisions regarding whether they want to enter into a contract with you or not. Thus, you need to make FDD in such a manner that your prospective franchisees can easily understand it.
Well, you must be brooding what to include in a Franchise Disclosure Document and what not to include in it. We have made this thing very easy for you. In this article, we have mentioned some of the important things that should be a part of FDD. Do you own an eminent educational institute? If yes, then make a simple and clear FDD to flourish your education franchise in India. Crafting FDD is equally important for every kind of business. Keep on reading this article to know the important elements of a Franchise Disclosure Document (FDD).
Here is a list of items you must include in your franchise disclosure document:
You need to make your franchisees very clear about your business. Be it regarding franchise fees or details of the brand, you need to give information regarding each and everything. So, make sure the following items are a part of FDD.
Initial fees and other fees
You need to mention it very clearly in your franchise document about the fee. It can actually save you from disputes as well as negotiations. So, clearly mention the franchise fee. Basically franchise fee is the amount of fee your franchisee needs to pay you for purchasing the company’s intellectual property rights, products and brand. Additionally, you need to mention the royalty fee. This fee is basically a percentage of sales of a franchise unit per month. Every franchisee needs to pay a royalty fee every month to their franchisor. Thus, make sure FDD clearly states the fees your franchisees need to pay in order to enter into the contract.
Estimated initial investment
It is imperative to make your prospective franchisees clear about the amount of capital they need to commence a franchise unit. So, mention this thing meticulously in the franchise document about initial capital investment. Be sure you are writing the realistic amounts in the FDD. In case your franchise document dictates any false information, it can lead to major disputes in future. Moreover, you can assure your franchisees that you’ll help them to arrange the finances to start a franchise unit. Also, it is advisable to link with the franchisees who are financially stable.
Restriction on sources of products and services
You can sell goods and/or services to your franchisees as a franchisor as long as you disclose that you (or a related organisation) is making profits from the sales. You’ll also have to reveal how much money you make from any mandatory purchases (including rebates from unaffiliated vendors). Again, the rule is to properly declare all sources of revenue generated through franchise sales. Also, you can allow your franchisees to purchase products from an external source.
Financial performance representatives
It is not mandatory to provide your franchisees with information of sales and profits. But, if you choose to do so, then provide this information through FPR. Note that FPR need not to be particularly in the form of financial statements or it is not essential to make FPR according to GAAP (Generally Accepted Accounting Principles). Therefore, you have a good amount of flexibility to give information about sales and profits. However, if you are planning to help your prospective franchisees in a correct way then do mention income statements in your FDD.
Franchise Disclosure Document should clearly mention the details of current franchisees. Additionally, you need to mention the number of franchise units you have opened till date. Well, don’t forget to mention the contact details of your current franchisees. Your prospective franchisees should have the liberty to contact current franchisees. They can ask some valid questions from them to clear their doubts. It can help your prospective franchisees to make a valid decision. Make sure the information about franchisees and franchise units is absolutely true. It can aid in providing a true image of your business to your prospective franchisees.
It is highly important to mention the role and responsibilities of your franchisees. Make it very clear in your FDD about what every franchisee is supposed to do. Also, strictly mention it in your franchise document that your franchisees need to abide by the rules and policies of franchise contract. It is essential for them to understand that they can’t implement their plans to franchise business without the permission of franchisor. Ask your franchisees to enter into a contract with them only when they’ll agree on the conditions mentioned in FDD. It can help you build amicable relations with your franchisees. Also, we would advise you to associate with franchisees who can accept the terms and conditions of a franchise contract.
Are you making FDD for a coaching institute franchise? If yes, then make sure you mention every important thing in the document. It can help you link with capable franchisees.
These are some of the important things you need to include in your FDD. However, make sure you are not copying FDD or any other business. It is advisable to make FDD according to your needs and what suits you best. Also, be sure to get legal advice before making FDD. A lawyer near me can give you appropriate advice to make a Franchise Disclosure Document.