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Decoding the Franchise Disclosure Document, from A-Z – Item #9

Item #9 is, perhaps, one of the most important items in the entire FDD because it’s all about YOUR obligations as a franchisee. If you aren’t comfortable with, or don’t feel that you can meet all of these requirements, it’s a tell-tale sign that you’re probably not a good fit for them.

Item #9 reads like a to-do list for you, the franchisee, along with a roadmap of where to find all the details.

What you’ll learn:

• Your contractual obligations as a franchisee, such as;

  • Whether or not you have to find your own real estate/location
  • Your requirements for preparing your own business plan
  • How often you have to receive ongoing training
  • Etc.

• Includes cross references to other items of the FDD as well as the franchise agreement, itself

Why is this important?

For obvious reasons, this is a critical item in the FDD. It’s fairly comprehensive but requires you to do a lot of back-and-forth reading.

Your to-do list is presented as a literal list. Each list item is then cross-referenced back to the correlating Item of the FDD, or the franchise agreement, which will then give you the specific language and instructions for what is required of you.

Let’s back up and explain that a bit further.

Let’s say, for example, that item #9 states that it is your obligation, as the franchisee, to find and purchase your own real estate. However, it won’t simply be a free-for-all. You’ll have rules and regulations to follow when looking for and purchasing your location, requirements for how big the property needs to be, guidelines for getting it approved by the franchise corporate office, etc. So, Item #9 would then direct you to read Item #12, with particulars about your territory, where you are allowed to set up shop, etc., Item #7, with facts about your real estate or property fees, and certain sections of the franchise agreement with further details about your location necessities and responsibilities.

In other words, Item #9 will give you a critical to-do item, and then provide you with a map of where you can find all of the specifics within the FDD and franchise agreement.

You’re probably thinking, ‘That sounds confusing!’

We won’t lie; it kind of is. There’s a lot of back-and-forth between the FDD and the franchise agreement, and within the FDD itself, to put all of the pieces together and fully grasp the complete details of your duties and what you can and cannot do with each of them.

It’s a lot of information and a time-consuming task, no doubt.

That’s why we suggest taking your time with this Item and reading it piece-by-piece. Don’t try to skim through it because you could miss a critical step or instruction.

The other reason it’s important to read this Item thoroughly is because during your cross-referencing, you need to watch out for inconsistencies. If the franchise agreement and the FDD have conflicting rules and directives, or missing details, then it’s a bit of a red flag. You should never take gaps as a sign that you have some autonomy to simply do what you want! Instead, think of them as missing pieces that need to be filled in before you commit to anything. Just because they haven’t spelled it out, doesn’t mean they don’t have a rule for it. You need to double-check and make sure that every single detail is filled in, and is universal across the board.

The bottom line is that #9 will tell you a variety of responsibilities that you have as a franchisee. Think of it as your job description, with specific and widespread instructions for getting it all done. And take it very, very seriously.

Next week, we’ll swap roles, and look into the franchisor’s obligations to YOU, in FDD Item #10.