What Is a Franchise Disclosure Document (FDD)?

What Is a Franchise Disclosure Document (FDD)?

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Timestamps:
(00:35) - Understanding Franchise Disclosure Document (FDD) and what to look for in the process
(00:57) - Explanation of FDD and its contents
(01:40) - Importance of seeking professional advice in reviewing FDD
(02:26) - Steps in reviewing the FDD and when legal review occurs
(03:27) - The importance of getting a franchise attorney to review the agreement, and what red flags to look for in the agreement
(04:12) – The fees that the franchisor and franchisee need to understand

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In this episode, we talk about the Franchise Disclosure Document (FDD) and how it is an important document that potential franchisees need to review.

The FDD is a document to help franchisees understand the responsibilities of both parties.

A franchise disclosure document (FDD) is a legal document that franchisors are required by law to provide to potential franchisees in the United States. The purpose of the FDD is to disclose important information about the franchisor and the franchise system to prospective franchisees so they can make informed decisions about whether to invest in the franchise.

The FDD typically includes information about the franchisor's history and business experience, the franchise system's fees and costs, the franchisee's obligations and restrictions, and other important details about the franchise opportunity. The FDD is usually a lengthy document, often running to several hundred pages, and it is designed to be comprehensive and informative.

By law, franchisors must provide the FDD to potential franchisees at least 14 days before the franchisee signs any agreement or pays any money to the franchisor. This gives the potential franchisee time to review the information and make an informed decision about whether to proceed with the franchise opportunity.

It contains 23 items, including details on fees, territory, financial performance, and more.

The FDD can be hundreds of pages long, but franchise brokers and attorneys can help potential franchisees understand it.

It is recommended that potential franchisees seek legal review of the FDD after they have gone through the due diligence process and have identified a franchise they are interested in.

This review can help identify any red flags in the agreement and ensure that the potential franchisee understands the agreement before signing.

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About Beau: Beau Eckstein is a real estate entrepreneur, TV personality, and commercial mortgage advisor, specializing in construction financing and multi-family lending.

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