Evaluate The New Franchise Disclosure Document
The new Franchise Disclosure Document (FDD), which is going to replace the old UFOC by July, is long overdue. It contains the answers to many of the concerns of both the franchisee and the franchisor. Below are some highlights of the changes that are being introduced in the FDD:
• The list of brokers assigned by the franchisor won’t be present in the new FDD. However, there will be mention of the names in the Receipt Page where all “franchise sellers” are identified by the franchisor.
• The FDD can be delivered by the franchisor through electronic media and the mandatory face-to-face meeting has been scrapped.
• Similarly, the receipt that a franchisee is supposed to sign can be electronic.
• Franchisees, who are starting a franchise which costs more than a million dollar, are exempted from getting the FDD before signing any agreement. The argument is that, a person making such a high range of investment knows what he is doing and doesn’t need the guidance of the FDD. This will help the master franchisees who are, in most cases, companies making an investment in the franchise industry.
• From now on the FDD will not only have the list of litigation cases started against the franchisor, but also those that were started by the franchisor against the franchisees. This will help the prospective franchisees to avoid a franchisor that has repeated problems with its franchisees.
• The name and legal history of all the people associated with franchise business for sale offers will have to be given. Before, franchisees got this kind of information only on the people in the management level. But now, they will know everyone in charge of the franchise wing of the franchisor.
• If a parent company is involved in some way with the franchise company that is offering franchise business for sale, then the litigation and the bankruptcy history of that parent company have to be presented in the new FDD.
• Similarly, if an officer of the franchise company has any holding in a designated supplier, then both the name of the supplier and the officer has to be presented in the new FDD. It will help the franchisees to stay clear of many unscrupulous franchisors who force their franchisees to buy products at high rates from them only!
• If the company is not providing any protected territory in the franchise agreement, then a warning about that has to be given in the FDD. This will alert the would-be franchisees that may face competition from other franchisees or even their franchisor (via different media) in their market.