What You Should Know About the FDD?

Franchise Disclosure Document (FDD), formerly called the Uniform Federal Offering Circular, (UFOC) provides prospective franchise investors with information about a prospective franchise. Company history, background information, risk factors and financial statements are just a few of the items covered.

To protect and inform the investor, the Federal Trade Commission (FTC) determined that a standardized disclosure must be in place for companies to offer their businesses as a franchise. Because the format is standardized, it makes for easy side-by-side comparisons between companies.

The FDD is provided to potential investors of franchises. Which means that this document is usually given to prospective investors who have made efforts to qualify for any particular franchise.  Usually a dialog has been established between the investor and the franchisor before the FDD is requested.

Regarding the format of the FDD. It consists of cover pages, table of contents, main body and exhibits.

The cover pages are straight-forward. They contain the name, address, contact information and basic business information. It also stresses how the FDD should be used and where to go for additional help.  There is also a state cover page which informs the investor that there may be state franchise laws. 

Additionally there is a paragraph on Risk Factors. This area points out potential risks inherent in the particular investment.

The table of contents simply list out the items that make of the body and exhibits of the FDD.

The main portion of the FDD is comprised of twenty-three items.

Item 1: The Franchisor and any Parents, Predecessors and Affiliates

Item 2: Business Experience

Item 3: Litigation

Item 4: Bankruptcy

Item 5: Initial Franchise Fee

Item 6: Other Fees

Item 7: Estimated Initial Investment

Item 8: Restrictions on Sources of Products and Services

Item 9: Franchisee’s Obligations

Item 10: Financing

Item 11: Franchisor’s Assistance, Advertising, Computer Systems and Training

Item 12: Territory

Item 13: Trademarks

Item 14: Patents, Copyrights and Proprietary Information

Item 15: Obligation to Participate in the Actual Operation of the Franchise Business

Item 16: Restrictions on What the Franchisee May Sell

Item 17: Renewal, Termination, Transfer and Dispute Resolution

Item 18: Public Figures

Item 19: Financial Performance Representations

Item 20: Outlets and Franchisee Information

Item 21: Financial Statements

Item 22: Contracts

Item 23: Receipts

In addition, there may be a number of Exhibits. These may include:

List of State Agencies/Agents for Service of Process
Franchise Agreement with Exhibits
Financial Statements
Lease
Collateral Assignment of Lease
Operations Manual
List of Franchisees, Current and Former
Release
Assignment of Franchise Agreement
State Addendums
Spousal/Partner Consent

To be able to invest in any franchise business, you will be required to have received the FDD. By familiarizing yourself with the format, you will have a better understanding of the franchise purchase process. Consider enlisting the assistance of a franchise consultant to aid you in your franchise search.

What is a CFE?

A Certified Franchise Executive (CFE) is a person who has chosen to take his career in franchise to the next level. He does this by taking a total of 3500 hours of continuing education classes which include courses in experience, participation, core, and electives. Experience and participation classes count for 500 hours each; core classes count for 1600 hours; elective course work earns a CFE student 900 hours.

Those who choose to become CFEs demonstrate that they have taken the initiative to continue their education above and beyond what is or may be required for franchise operations. CFE students are able to reach new goals in such areas as professional development and career planning.

In addition, those who achieve CFE certification also display a sense of pride and self-fulfillment: both personal and professional, and exhibit dedication and loyalty to their careers. Further, they show others how much they believe in the franchising industry and their decision to pursue a career in that area.

Becoming a Certified Franchise Executive allows you to place the letters "CFE" after your name, just as you would any other title or educational accomplishment. When people see this, they are aware that you have voluntarily committed yourself to a higher standard in the franchising field.

Further, becoming a CFE casts you in a more positive light when it comes to seeking employment or working towards a promotion or other type of career advancement.

In order to be eligible to pursue a CFE, a person must be considered as already being active in the franchising field. From there, all necessary requirements of the CFE program must be successfully completed.

A person pursuing CFE certification may take the required courses on his own time, working them around his individual schedule. However, all courses must be completed within three years after he has enrolled in the program. Average completion time is usually 1½ to 2 years. If a person has not completed the program by the end of the third year, it will be necessary for him to enroll again in the problem. This will incur an additional enrollment fee.

A person will be notified when he is getting close to the three-year deadline. In this way, he can arrange to either speed up the process or prepare for re-enrollment.

Anyone who is employed in the franchise industry would do well to consider achieving CFE certification.

Contact one for FranFinders franchise consultants to learn more about franchises and the franchise industry.

What's in a Franchise Agreement?

Franchises are different; therefore, franchise agreements must by necessity be different in scope and tone. However, there are certain provisions that are or should be included in most franchise agreements.

• Obligations of both franchisors and franchisees concerning business operations must be spelled out, in as complete detail as possible.
• The amount of training and operational support that the franchiser will be responsible for providing must be clearly stated. This information should also include the cost of the training and operational support.
• The territory in which you are allowed to operate your franchise must be plainly stated. In addition, any exclusion which may apply must also appear in this section.
• How long the franchise agreement will be in force must be included in the document. Renewal rights must also be stated.
• The amount of investment required by the franchisee must appear in the agreement.
• Guidelines and regulations concerning trademarks, patents and signs and the rights and responsibilities of the franchisee as pertaining to them must be included in the agreement, and written in such a manner that the franchisee will be able to follow them with minimal, if any, problems.
• Fee amounts, including franchise, royalty, and service fees for which the franchisee is responsible must be stated in the agreement.
• The responsibilities of both franchisee and franchisor where tax issues are concerned must be addressed. 
• Conditions and restrictions on the sale or transfer of the franchise must be clearly stated.
• Any advertising policies that must be adhered to by the franchisee should be plainly stated.
• How franchisee termination issues will be handled must be included in the agreement.
• Dispute settlement guidelines must be in the agreement. Further, the paragraphs addressing these must include how the company will settle disputes, how disputes concerning operating practices will be handled, dispute cancellations, and who will be responsible for attorney fees.

By contacting one of FranFinders expert franchise consultants, you can be referred to a competent franchise attorney that can review any franchise agreement sample.

How to Leave your Job Correctly

If you are considering investing in a franchise, there are quite a few things you are going to have to accomplish before you can even think about quitting your job. Some of them may be easier than others, but you should concentrate on having fulfilled them all before you turn in that notice.

• Of course, the first order of business is to figure out what type of franchise you want to invest in. This should definitely be done before quitting your current job.
  
• You want to have the franchise business you have chosen to be operating on at least a part-time basis before you quit. In order to do this, you will most likely have to go ahead and pay the franchise and other start-up fees, so you will have already invested at least some money into the franchise.
  
• Since you will in essence be working two jobs, it is better to have the franchise operating on a part-time basis, at least for the first little while. Otherwise, unless you can employees to keep it open full-time without your presence being required, you are going to essentially be working two jobs, which means you will have no time for family or other activities. Stretching yourself that thin may cause you problems on your current job. This may lead to your having to quit before you are truly ready.
  
  
• Have a back-up plan. If the franchise fails, you are going to need something to fall back on, either savings or another source of income, or the ability to return to your previous employment. Do not quit until you have established this back-up plan.
  
• Don't quit your job until you are certain you are completely ready. Make sure you have everything in place, including a good business plan, additional income, preferably in the form of savings to cover personal and living expenses, and money that you can put back into the business. Also, check to see what you need to do about keeping your current insurance policies, including health and life. Make sure your back-up plan is in place, and most importantly of all, make sure you have the wherewithal to make your new business work.

Once you have all that in place, you can then confidently walk into your supervisor's office, or the Human Resources Department, and hand in your two weeks notice.

If quitting your job is a priority for you, then Consider using the advice of one of FranFinders expert franchise consultants to assist you with your goal.

Licenses vs. Franchises

There are distinct differences between franchising and licensing businesses. The chief one concerns establishment and operation costs, but there are others as well. It is important to know about as many of these differences as possible before deciding which one is best for you.

Let's talk about the difference that has already been mentioned: establishment and operating costs. A franchise requires that a significant amount of money be paid at the very beginning. Additionally, you will continue to pay royalty, advertising, and other fees to the parent company.

On the other hand, you only pay for a licensing fee one time, and the cost is usually lower than that of a franchise fee. Because you are not connected with a franchise, however, you do not have to pay royalty fees or provide financial information on your business. You are pretty much responsible, however, for your own advertising and other business-related expenses that might be covered in a franchise.

Relationships between franchisees and parent companies and licensees and those from whom they obtained the license are different. Franchisees can expect to work a little more closely with the parent company; this may be especially true in the areas of training and support. Further, as a franchisee, you retain certain rights to company trademarks and logos.

Also, as a franchisee, you may be limited in some areas, such as where your branch can be located, which products and services you can offer, and possibly even price amounts.

A licensee, however, may not have much contact with the original license holder at all. Further, the license agreement may not include the use of a brand or trademark; rather, as a licensee, you will be expected to make your own mark in the particular market for which you hold a license. You probably won't get a lot of training or support from the original license holder, either.

Further, as a general rule, you do not have any territorial rights. In other words, the original licensor can sell as many licenses, along with the products and services they offer, as he wishes in the same geographic area.

On the bright side, about the only time you will even be in contact with the licensor is when you're buying his product to sell in your store. However, that's all you'll pay, is the purchase price on the product. You won't have to pay royalty, advertising, or other fees to support the licensor.

Whether you seek to be a licensee or franchisee, an expert FranFinders franchise consultant can assist you with your search.

How Franchising Works

Here is a concise, "pocket-guide" on How Franchising Works.

The Merriam-Webster dictionary defines a "franchise" as "the right or license granted to an individual or group to market a company's goods or services in a particular territory"; also "a business granted such a right or license".

A "franchisor" is defined as "one that grants a franchise", while a "franchisee" is defined as "one granted a franchise". The phonetic pronunciation for franchisor is fran-chi-zor; the phonetic pronunciation for franchisee is fran-chi-zee.

The reader may now be asking himself why, if this is an article on how franchising works, was it necessary for the short lesson in Language Arts? The answer is because for the remainder of this article, we are going to be discussing some fascinating creatures called "Zors" and "Zees", and it's important to know how they got their names.

(Seriously, in the franchise industry, it is common to drop the first seven letters, thus referring to those who sell franchisors as "zors", and those who buy and/or operate franchises as "zees".)
In Franchise World, "Zors" are the people who own businesses that operate as franchises. An example of a franchise in the "real world" would be McDonald's®.
"Zees" are people who live in Franchise World and want to own or operate one of the "Zors" franchises for themselves. In order to do this, a "Zee" enters into a business arrangement, usually by paying a certain amount of money, with a "Zor" which allows him to establish or operate a particular franchise in the "Zee's" desired location.

When "Zors" and "Zees" enter into this business arrangement, both of them reap benefits. "Zors" see a profit from the money that has been paid to operate a franchise. "Zees" have the opportunity to go into business for themselves, thus providing them with steady incomes and employment opportunities.

When you think about it, though, "Zors" and "Zees" actually need each other. Without "Zees" to buy into their franchises, "Zors" may actually start to see a decline in franchise growth.

On the other hand, many times, the purchase of a franchise is a "Zee's" first time to operate a business. And, as is so often the case, the "Zee" is going to need all the help and guidance he can get from his "Zor".

This article may have been written in a light vein, but the fact is that both franchisors and franchisees serve a distinct purpose in their own right. For this reason, it is important that franchisors consider franchisees as partners or equals, affording them all the support and respect they need and deserve. Franchisees need to prove to franchisers that they have earned the respect shown to them, and acknowledge the support by making the franchise as successful as possible.

If you're looking for additional help, there are experts in the industry who work with beginners, they are franchise consultants. Reach out to one today, they can provide the next level of information.

Making the Most Money

You're asking yourself, "What Franchise Makes the Most Money?" Good question.

A person can't really point to a particular franchise and say, "There's the money maker," because the fact is any franchise can be profitable. So, instead of trying to determine which franchise will make you richer faster; look for things that must be present in order for any franchise to be profitable.

• One of the key indicators to a profitable franchise is how well it is managed. As with any business, franchise or otherwise, if it is struggling or otherwise unproductive, often the blame, or at least part of it, is going to rest with management.
  
• The home real estate industry likes to say that the key to a successful home sale is almost always "location, location, location". In the franchise industry, those words could be "market, market, market". There have been instances of franchises succeeding in markets that previously did not seem as though they would support them. However, these are usually the exceptions to the rule: most of the time the success of a franchise will depend on whether or not the services it provides are needed or wanted.
  
• If you want to try to get a clear picture of a franchise's profitability, ask to see the Franchise Disclosure Document (FDD). This is a publication that franchisors—those who offer franchises for sale - are obligated to provide to prospective buyers. If a franchisor is dragging their heels to provide the document, or if there is evidence that certain sections of the document may not be a true reflection of the franchise's profitability, this can be a sign that the franchise is not doing well.
• Consider whether or not the franchise has good investment possibilities. If lenders or other financial backers seem reluctant to provide all or part of the money needed to start a franchise branch, this may indicate that the master franchise itself, or at least a good portion of it, is experiencing profitability difficulties. Keep in mind, however, that a number of factors can affect profitability at any given time, so a little more research may be in order to try to ascertain the reason for the investors' reluctance.
  
• One of the best indications of a successful franchise is sound strategy development. The franchise that combines tactics that are known to be successful with others intended to further growth are often the ones with the highest profitability.

The more of the above key indicators, as well as others, that are present, the more likely it is that a franchise will be successful. By looking for these and other signs of good business practices, you can determine which franchises are indeed the most profitable.

To aid you in evaluation these indicators, one of many franchise consultants can assist you