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What You Need to Know About Financial Disclosure Documents

Best in Class Educational Center

Starting a franchise is an exciting experience. What is less exciting is dealing with the paperwork and legal requirements. One of the most important items of paperwork to be aware of as a potential franchisee is the financial disclosure document. This includes financial information about the company that is important to making a franchise investment.

What Is a Financial Disclosure Document?

The FDD is a document detailing important information, largely financial, about the franchise company from which you are considering buying a franchise. According to the Federal Trade Commission, the purpose is to help potential franchisees make informed decisions about whether to move forward with the purchase process.

What Is Included in a Financial Disclosure Document?

The main component of the financial disclosure document is the essential financial information about the organization. This may include statements such as:

  • Cash flow
  • Owner’s equity shares
  • Statements of operations
  • Balance sheets

Additionally, the document is required to disclose whether the organization or executives have declared bankruptcy recently. This will give you a strong sense of the financial stability of the franchisor.

The FDD will also include information about the cost of buying a franchise. This includes the franchise fees and initial franchise investment. It may also include some representations of the financial performance; however, this is not required.

Beyond financial information, the document will also include the contracts involved in starting a franchise. Finally, it will provide useful information on the organization including contact information for other franchisees.

Franchise Fees

The franchisor will charge you some fees if you choose to purchase a franchise. Information on this will be included in the document. Other fees may also be noted, such as:

  • Deposits
  • Inventory
  • Rentals
  • Advertising
  • Equipment
  • Signage
  • Leases
  • Royalties

Initial Franchise Investment

Starting a franchise typically involves some investment beyond the basic fees. The franchisor is required to provide an estimate of this amount. In many cases, this will be provided as a range rather than a single number. However, you can always contact the franchisor to get a better sense of where the initial franchise investment is likely to fall within that range. You will need capital to cover this amount.

Learn More

Although financial disclosures are not the most thrilling aspect of starting a franchise, they are important. If you want to learn more about franchises with Best in Class Education Center, contact us. We are happy to answer any questions and to begin you on the first steps to your own franchise if you are interested.


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