FDD Resources
Looking for Red Flags
Sometimes people believe that the best way to explore franchise opportunities is to review lots of Franchise Disclosure Documents. These folks build tables to compare royalty rates, look at the disclosed investment number, and they count the items of litigation. They will almost always jump to Item 19 expecting to figure out how much money they will make. The believe is that gathering more FDD knowledge will allow them to figure out which franchise is the best. Unfortunately, that’s simply not the case.
The Franchise Disclosure Document does not tell you how the franchise competes against its competitors, who the competitors are and other qualitative aspects of the business. Instead, the Franchise Disclosure Document exclusively focuses on the factual information about the franchisor and the proposed relationship between the franchisor and franchisee.
Perhaps most important, the Franchise Disclosure Document reveals any red flags you should be aware of before making a judgment on the attractiveness of a franchise. The document helps you see past the flashy marketing and sales and allows you to refocus on an analytical view of the franchisor and the related opportunity.