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Mar
3
2020
OWNERSHIP

What is the Franchise Disclosure Document and Why is it Important for Franchise Business?

What is the Franchise Disclosure Document and Why is it Important for Franchise Business?

The International Franchise Association’s Franchise Business Economic Outlook for 2020 projects the number of franchised businesses in the U.S. will increase by 1.5 percent to a total of 785,316 establishments. Chances are, if you’re an entrepreneur looking to be a part of this growth, you have a million questions about everything from costs and training to earnings potential.

One of the most important sources of information for those investigating how to buy a franchise is the Franchise Disclosure Document, or FDD. It contains 23 sections that provide a vast amount of information to help prospective franchisees make an informed decision about a franchise opportunity. While the quality and contents of the FDD can vary among franchisors, each is required to contain the following sections or “items” in this order.

1: The Franchisor and Any Parents, Predecessors and Affiliates

  • The company and its history including affiliated and parent companies.

2: Business Experience

  • Biographical information and professional experience of the franchise founder and management team.
  • Operational history of the business.

3: Litigation

  • Relevant criminal and civil litigation in the past ten years involving the franchisor, its affiliates, predecessors and individual management team members.

4: Bankruptcy

  • Details about the franchisor, its affiliates, predecessors or any individual management team members that have previously filed for bankruptcy.

5: Initial Fees

  • All upfront fees associated with opening a franchise business such as the initial franchise fee, multi-unit fees, necessary supplies and materials, opening inventory and any equipment that must be purchased from the franchisor.
  • Any factors that determine the amount of the fees.

6: Other Fees

  • All ongoing fees or payments throughout the term of the franchise agreement like royalties, brand development funds, marketing, technology, training and renewal fees along with others that may be specific to the franchisor.

7: Estimated Initial Investment

  • Low to high range.
  • The initial fees disclosed in Item 5 along with expenses related to building-out and equipping the franchise business and the reserve capital needed for the first three months of operation.

8: Restrictions on Sources of Products and Services

  • Outlines what must be purchased directly from the franchisor or designated suppliers.
  • Any revenue or rebates the franchisor earns from selling these source-restricted items to franchisees.

9: Franchisee’s Obligations

  • Franchisee’s responsibilities under the franchise agreement.
  • Includes a summary of all legal obligations ranging from site selection and opening to default provisions and requirements upon termination of the franchise agreement.

10: Financing

  • Funding options offered by the franchisor for initial fees or other expenses in connection to the franchise business as well as the terms and conditions.

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

  • Services and training the franchisor will provide to franchisees.
  • Advertising requirements, computer and software systems that will need to be purchased and utilized in the operation of the business.

12: Territory

  • Details territory determination (if offered), whether it can be modified and instances where the franchisor reserves the right to operate within that territory.

13: Trademarks

  • Franchisor’s trademarks, service and trade names.
  • Registration status with the United States Patent and Trademark Office and any notices regarding a trademark conflict or dispute.

14: Patents, Copyrights and Proprietary Information

  • Patents, copyrights and other proprietary information related to the franchise system and how they can be used by the franchisee.

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

  • Requirements for the franchisee’s level of personal involvement in the day-to-day operation of the business.

16: Restrictions on What the Franchisee May Sell

  • Restrictions on the goods and services that may be sold in the franchise business.

17: Renewal, Termination, Transfer and Dispute Resolution

  • If and when the franchise agreement can be renewed, transferred or terminated.
  • The franchisee’s rights and restrictions for resolving legal disputes with the franchisor.

18: Public Figures

  • Any celebrities or other public figures that have been hired to promote the franchise system, along with the amount of their compensation.

19: Financial Performance Representations

  • Sales, earnings or expenses.
  • Franchisor is not required to provide this information.

20: Outlets and Franchisee Information

  • Locations and contact information of existing franchisees and those that left the system in the past fiscal year.
  • The number of franchises that were opened, closed and transferred as well as terminations over the past three years.
  • A projection of anticipated openings in the next year.

21: Financial Statements

  • Audited financial statements for the past three years including balance sheets, statements of operations, owner’s equity and cash flows.

22: Contracts

  • Complete list with attached samples of each contract the franchisee is required to sign like the franchise agreement, related agreements for development, site selection and release, financing and product supply agreements, personal guarantees, software licensing agreements and any other contracts that may be specific to that franchise business.

23: Receipts

  • Signed confirmation to prove the proper disclosure and delivery of the FDD.

The goal of the FDD is to provide prospective franchisees with vetted and validated information that can be used in the decision-making process. It may make for dry reading, but the devil is in the details, especially when it comes to learning how to buy a franchise. The FDD is a treasure trove of information that warrants careful consideration to avoid potential pitfalls.

We Proudly Support Our Veterans

We Proudly Support Our Veterans

Participating partners with the VetFran program, The UPS Store offers qualifying veterans $10,000 off their franchise fee to start their new business. To learn more, contact The UPS Store Franchise Development Team.

Ranked for 30 Consecutive Years

Ranked for 30 Consecutive Years

The UPS Store has been ranked #1 in the postal and business services category for 30 years and remains in the top 5 overall for the fourth consecutive year according to the Franchise 500 list.

Kristin Howard

Franchisee, Michigan

The reason my husband and I decided to go into franchising and specifically with The UPS Store, is the different opportunities we're given with the business. The UPS Store has name recognition as well as opportunities to expand.

Debbie Adams

Franchisee, Kentucky

What I enjoy most about being a The UPS Store owner is working with my customers. We are the solution specialists for our customers.

Jim George

Franchisee, Illinios

My favorite part about The UPS Store network is the camaraderie with other franchisees. Everybody loves to help everybody else. You’re really part of a family.

Greg Murray

Franchisee, Florida

The interesting thing about The UPS Store is that when a customer walks through the door there's an extremely high probability that they're coming there to do something that is important to them. So at the end of the day, what we do for customers is very important and they are trusting that we are going to do it well.

See the Full Testimonial

Mariana Huberman

Franchisee, Washington, D.C.

One of the things that I love about The UPS Store franchise system is that you're not ever in this by yourself. The franchisees of The UPS Store network are great.

Heidi Morris

Franchisee, Colorado

The thing I enjoy most about being a The UPS Store franchisee is I get to get up, go to work and know that I'm helping other business owners succeed in what they're doing.

Bob Brown

Franchisee, Tennessee

Owning a The UPS Store franchise has changed my life because it's finally given me the opportunity to engage my customers and my staff and be able to take real pride in what I do. As a franchisee, we get faced with solving peoples' problems every day and we do everything we possibly can to try to help.

Marie Jensen

Franchisee, Oregon

My favorite thing about The UPS Store is the variety. I love the variety of customers, I love the variety of services; getting to know the customers, meeting their needs, finding out how we can help them accomplish what they need to accomplish and seeing how happy they are. That makes me ecstatic.

Tad Mollnhauer

Franchisee, Florida

With the products and services that The UPS Store provides we can make a difference in people's lives and that is the best reason for being a The UPS Store owner.

Joy Batchelor

Franchisee, Idaho

What makes being a The UPS Store franchisee worthwhile at the end of the day is the customers. The customers treat us like we're family.

Paul Erchinger

Franchisee, Texas

One nice benefit of owning a The UPS Store franchise for me has been that it gives me the opportunity to be more involved in the community. As I make relationships with others it seems like no matter what the environment is, in one way or another business comes out of that and that's not my objective—it's been a secondary benefit to being involved in the community.

Chris Reminder

Franchisee, Ohio

There are several things that I really enjoy about being a The UPS Store franchisee. First and foremost it allows me to get to know the people in the local community and that is a lot of fun. We get to see people on a regular basis. We get to know their life stories. That's a lot of fun.

Bruce Jones

Franchisee, Kentucky

Since we have joined The UPS Store, our life has changed by just having more time to spend together as a family. We've been very fortunate with the stores that we have and we have a great staff that looks out for our best interest and we look out for theirs.

Lonnie Williams

Franchisee, Oklahoma

What makes The UPS Store so successful is it gives each individual an opportunity to grow with the network and just meet the challenges that are brought to them on a daily basis. Every day gives us a new opportunity to help another person, to help another small business, to answer a question and to solve a problem.

Jeff Graham

Franchisee, Alabama

I love my customers. I love my employees. I love every person, every face that comes into my store. I enjoy every day going into work and I can't see doing anything else for the rest of my life.

Stacie Stigar

Franchisee, Alaska

I think that this franchise is so successful because of all of the resources that are available to us as center owners—we have marketing materials, we have so many different opportunities for help from the home office, and it just really makes for a great franchise.

Don Pollard

Franchisee, New Jersey

I think the thing that makes this franchise successful is a number of things. First of all we have an outstanding system, we have a great product, a great brand, and we're able to attract dynamic people to run these centers and run the business. So I think when you put all that together it really provides for a winning combination.

Mary Ellen Nichols

Franchisee, Tennessee

The thing I love about the franchise is that you have the UPS name backing you but yet you also have the autonomy to make your own decisions to promote.

Laura Griffin

Franchisee, Florida

In the eight short months I've owned my The UPS Store it has really changed my life. I've gone from being an employee of someone else to being an employer of my associates. It's a big responsibility but it's exciting every day.

Sandy Scandrett

Franchisee, Wisconsin

Being a The UPS Store franchisee has improved every aspect of my life. It's very rewarding financially, professionally, and emotionally. I have a large number of regular customers who are really, really appreciative of everything we do.

Kristie Robison

Franchisee, Alabama

I would say owning a The UPS Store location has changed my life to where I have more time and flexibility. In owning your own business you get your store up and running and you get employees that you can trust that are going to help keep your store running. This allows me to attend my two boys' ball games and also travel and do things with them so it has really changed my life for the better.

See the Full Testimonial