At some point in the process of opening a franchise, business owners will have to sign a Franchise Disclosure Document. The agreement, typically around 100-150 pages in length, will be sent to the franchisees two weeks in advance of any contract agreements. They are intended to let the new business owner know the background and terms of his or her new franchise opportunity. As such, franchisees should make sure to read the document thoroughly and take special care when looking over a few key areas.
Finances are, of course, of high concern to the franchisee. In the FDD, pay attention to the initial franchise fee, ongoing royalty fees and any other fees that might be present. See if any of the money being spent goes toward training or ongoing support.
Though many businesspeople are already familiar with their franchisor, reviewing the company's history and background in the FDD is still smart. Entrepreneur magazine recommends looking for any litigation history, how long the company has been in business and the experience of the company management. Also check to see if a financial performance representation is included; this will give new franchisees an idea of the company's revenue, and usually appears as Item 19.
Remember that franchisors are there to help. If business owners have any questions about the document or their new business, contacting the franchisor is a smart move and can reassure entrepreneurs that they're pursuing a franchising opportunity intelligently.
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