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When you read Item 9, Franchisee’s Obligations, in the Franchise Disclosure Document (FDD) you might wonder, “What’s this all about?”
In this section of the FDD, which franchisors are required to give to prospective franchisees at least two weeks before selling a franchise, the franchisor must explain everything that franchisees are expected to do to fulfill their contractual obligations to the franchisor. This section is usually lengthy, and very detailed. Consequently, prospective franchisees sometimes find it baffling.
As one prospective franchisee exclaimed after reading Item 9, “The franchisor not only told me when I have to open and close the business, but what I have to wear, how I have to act, how much advertising money I have to spend, and the sales volume that they expect me to produce every year. Not only that, they put restrictions on the products and services that I can sell!”
That’s a fairly good summary of Item 9. From A to Z, the franchisor spells out what franchisees are expected to do from day to day, and month to month. The volume of “to do’s” may be overwhelming for many prospective franchisees, but when you think about it, this is a good way for a franchisor to relay these pertinent details. You wouldn’t want the franchisor to wait to tell you what’s expected of you until after you bought the franchise, would you?
Full disclosure has benefits
Disclosure is one of the reasons why franchising has become so successful in the USA. In fact, in other countries where disclosure is not required, or less disclosure is required, franchising is not as successful.
But sadly, many franchise prospects do not read the FDD, or they scan it, and it’s only after they sign the franchise agreement and go to the franchisor’s training program that they realize what’s expected of them.
You can’t say you didn’t know
When existing franchisees complain, “I didn’t know the business had to be open 24 hours a day,” or “I didn’t know I was expected to open the business on Saturdays, or “I didn’t know that I had to buy my inventory from the franchisor,” etc., they rarely find a sympathetic ear. That information was disclosed to them before they bought the franchise.
“Well,” some franchisees say, “I didn’t read that document. It was too much information, so I gave it to my attorney to read.”
It’s a must-read document
But the FDD is not intended for franchise attorneys to read. They usually write them, and they don’t need to read them. It’s critically important that you, as a prospective franchisee, read the FDD at least once. It’s written in a lay person’s language so that so that it’s easier to understand.
And the FDD is where you will discover exactly what you’ll be expected to do as a franchisee. In fact, these are the steps the franchisor requires you to fulfill so that you can succeed as a franchisee. You may at first find the information overwhelming, but when you think about it you’ll be happy that the franchisor told you about these requirements upfront.