In our previous blog, we minutely examined the items included in a franchise disclosure document (FDD). In this blog, we will discuss Item 7, the Initial Investment, in greater detail. For more information on Item 7 of a Missouri FDD, please continue reading, then contact one of our experienced franchise acquisition attorneys as soon as possible. Some questions you may have include:
What does Item 7 of a Missouri FDD include?
Federal and state franchise law requires franchisors to disclose the “estimated” costs for starting a franchised business. Presumably, the franchisor will base the estimated costs on its own experience and those of its franchisees. In particular, Item 7 will include low to high estimated expenses and other information regarding the franchise fee, expenses for training workers, equipment and other necessities for the franchise to operate, inventory, and more.
What should you pay particular attention to within Item 7 of a Missouri FDD?
In the hurly-burly of launching a franchised business, you might overlook a mandatory start-up expense disclosure related to “reserve capital,” commonly referred to as “additional funds required.”
That said, this is an important term to pay attention to, as it essentially translates to funds your franchisor estimates that you will need in the future i.e. funds you should have saved away somewhere, because you may need them sooner than you may think. This is because oftentimes, when a franchise first starts out, it won’t automatically be successful out of the gate and may require some extra funds to stay afloat for a bit. This isn’t a guarantee, but it may happen, and it’s best to be prepared.
For answers to any additional questions you may have, please give us a call today.
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