Buying into a franchised business is a serious commitment. With this, there is a lot of paperwork involved, the most notable one being the franchise disclosure document (FDD). This document includes 23 sections, such as Item 11: Franchisor’s Assistance, Advertising, Computer Systems, and Training. Continue reading to learn what a franchisor should note in Item 11 of the FDD and how one of the experienced franchise law attorneys at FortmanSpann, LLC can help you decipher this.
What is the franchise disclosure document?
The Federal Trade Commission (FTC) has made the FDD a legal requirement before a franchisor follows through on a sale with a prospective franchisee. This is because this legal document contains critical information on how the business relationship will be conducted between a prospective franchisee and the franchisor. In other words, it allows the prospective franchisee to know what they are getting into before they make such a pivotal decision.
What’s more, not all FDDs are the same. This means that franchisors may offer varying forms of support to prospective franchisees in return for licensing fees. This is all the more reason why the items within an FDD must be fleshed out.
What should a franchisor disclose in Item 11 of the FDD?
To reiterate, Item 11 of the FDD provides prospective franchisees with critical information on the assistance they can expect from a franchisor when it comes to advertising, computer systems, training, and more. This allows prospective franchisees to better understand the time and effort both they and the franchisor will be expected to invest, to ultimately conclude whether this franchised business is the best fit for them.
First of all, Item 11 opens up with a mandatory statement of assistance and limitations. According to franchise law, this statement must be written in bold type and read as follows: “Except as listed below, [the franchisor] is not required to provide you with any assistance.” The intention is so that prospective franchisees are clear on the exact support they are to receive from a franchisor, with no more or no less to consider.
In addition, the following disclosures must be made within Item 11 of the FDD:
- The pre-opening assistance the franchisee will provide for site selection, purchase or lease negotiation, etc.
- The typical length of time between signing the franchise agreement/making the first payment of consideration to opening the franchised business.
- The ongoing assistance the franchisor will provide for product development, training, hiring, etc.
- The type of advertising assistance the franchisor will provide for the source of advertising, the amount of money for advertising, etc.
- The means of allocating expenses and whether the franchisor will distribute periodic accounting of advertising funds.
- The types of computer systems assistance the franchisor will provide for purchasing software and hardware.
- The summary of the operations manual the franchisor will offer.
- The types of training programs the franchisor will offer.
There is no time like the present when it comes to combing through your FDD. Reach out to one of the skilled franchise law attorneys at FortmanSpann, LLC today.