Franchise Basics: What are Disclosure Documents?

Author: shawna@frantechmedia.com

Date: MAR 6th, 2013

Topic: Industry Experts

You've chosen a franchise that you're interested in, but you'd like to find out a few more business specifics about the success of its business model. You've read all the press releases, but how do you go about delving into the real history of the company?

Franchise Basics: What are Disclosure Documents?

If you're asking yourself these questions, then congratulations, because you're on the right track toward becoming a successful franchisee. Fortunately, there are a number of ways to find out everything you need to know before you make your initial investment into a new franchise business and all of these ways point to disclosure documents.

Disclosure documents can give a wealth of information on the franchiser and can also provide insightful facts about its staff, its executive team and the way the company does business. Typically, disclosure documents should contain the following information:

  • Franchiser's corporate name
  • Franchiser's business type
  • Previous business experience of all of the directors, officers and upper management staff
  • Track record of any convictions, bankruptcies, liabilities or administrative or civil actions against the franchiser and its officers
  • Investment requirements
  • Additional fees
  • Estimate for yearly operational costs and working capital costs
  • Revenue projections
  • Summary of training provided by franchiser's training program
  • Summary of financing help provided by franchiser
  • Summary of operational support provided by franchiser
  • List of any necessary licenses required
  • List of any restrictions imposed on sales
  • Discount and rebate policies
  • Relevant trademark and copyright information
  • Franchise territories available
  • Renewal and transfer terms of the franchise
  • Dispute resolution policies
  • Obligations of franchisee

Disclosure documents should also contain attachments containing pertinent contract information, including:

  • Current list of both active and inactive franchisees with contact information
  • Financial statements applicable to franchiser
  • Copy of franchise agreement
  • Comprehensive operations manual
  • Certificate signed by an officer of the franchiser verifying the truth of all statements included

Once the disclosure documents are delivered, the prospective franchisee will be required to sign and date a receipt acknowledging the fact that the documents were safely received.

Disclosure documents are invaluable when it comes to assessing the potential of a new franchise, but it's good to be aware that they only provide a summarized overview of the franchising company.

Experts agree: if you're considering purchasing a franchise, it's crucial for you to go over every aspect of the franchise agreement with a fine-tooth comb and it's also advisable to bring in a lawyer with franchise expertise. An experienced legal advisor can help you navigate your way through the disclosure documents so that in the end, you'll be able to make an educated decision as to whether or not you want to invest your valuable time and money in that particular franchise company.