Key Sections of a Franchise Disclosure Document: An Annual Review Guide for Franchisors

A Franchise Disclosure Document (FDD) serves as the foundation of the franchisor-franchisee relationship. Not only is it a critical sales tool for the franchisor, but it also gives a prospective franchisee vital insight into the franchise opportunity and help them make an informed decision to invest. While the FDD is a comprehensive document, certain key sections demand careful scrutiny during an annual review. This article explores some considerations for updating three key sections of your FDD this season and why franchisors should focus on them.

Item 19: Financial Performance RepresentationsItem 19 provides a snapshot of the financial performance of the franchise system for the prior fiscal year. While a financial performance representation is not mandatory under the Federal Trade Commission (FTC) Franchise Rule, many franchisors include some form of representation to show prospective franchisees their historical sales volumes and other relevant financial data. A franchisor is…