The Franchise Disclosure Document
It isn’t what the book costs; it’s what it will cost if you don’t read it. JIM ROHN
The first glimpse of a Franchise Disclosure Document may be a bit daunting. After all, it is typically a thick, bound document with a lot of print and complexity.
But looks can be deceiving! The Franchise Disclosure Document is not only one of the most important consumer protections in American business, but it is also constructed and written in a way the average person can understand.
The earliest days of franchising were marked by some “bad actors” in the business, people who attracted the interest of the Federal Trade Commission (FTC). Because early franchisees were being victimized by false claims and unfulfilled promises, the FTC stepped in and created a series of laws revolving around franchising. In 1978, the FTC issued guidelines requiring that every franchisor publish, and share with prospective franchisees, a Franchise Disclosure Document. The Franchise Disclosure Document is primarily designed to protect franchisees.
Given today’s growing franchising business environment, it is clear that Franchise Disclosure Document protection is actually helpful not only to franchisees, but also to franchisors who want their prospects to feel assured high ethics are being observed. In short, it helps the entire franchising community.
The purpose of the Franchise Disclosure Document is to provide the franchisee with three things:
- Transparency: Prior to making any commitment, the prospective franchisee benefits from a significant amount of information that aids in the study of a franchise business.
- Education: The U.S. government wants the prospective franchisee to be well educated about the franchised business opportunity prior to committing time or resources.
- Simplification: Franchise Disclosure Documents are all structured fundamentally the same and are written in layman’s language. Once you understand the format, you’ll be able to easily review any franchise business.