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What Is a Franchise Disclosure Document?

Jack 5/24/22 9:38 AM

Franchise Disclosure Document

If you’re new to the world of franchising, then you’re probably wondering, “What is a franchise disclosure document (FDD) and why is it so important?”

At Jack in the Box, we believe this document is one of the most valuable resources in franchising.

In this article, we will go over everything you need to know about the Franchise Disclosure Document.

Franchise Disclosure Document: What Is It?

The franchise disclosure document is a legal document that must be given to individuals who are interested in buying a franchise in the United States.

This document is part of the pre-sale due diligence process. It contains information essential to potential franchisees who are about to make a significant investment.

You’ll find the FDD is full of information that will help answer your questions about franchising with the brand you’re interested in.

It’s not uncommon for this legal document to be well over 500 pages long. As a matter of fact, the FDD at Jack in the Box contains more than 600 pages.

Keep in mind, all this information has been thoughtfully included to help you make the best franchise investment for your business. In our opinion, it helps to have more than you need instead of too little.

What Are the 23 Items in the Franchise Disclosure Document?

The franchise disclosure document is broken down into 23 different “Items” much like how a book is separated by chapters.

Item 1: The Franchisor, and Any Parents, Predecessors and Affiliates
Item 2: Business Experience
Item 3: Litigation
Item 4: Bankruptcy
Item 5: Initial Fees
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 Representation
Item 20: Outlets and Franchisee Information
Item 21: Financial Statements
Item 22: Contracts
Item 23: Receipt

Within the FDD, you’ll find things like initial costs, estimated initial investment, territory definitions, royalty fees, trademarks, renewal terms, and so much more.

How to Use the Franchise Disclosure Document

At Jack in the Box, our FDD includes common questions along with where you can find information throughout the document. For example:

How Much Can I Earn? Item 19 may give you information about outlet sales, costs, profits, or losses. You should also try to obtain this information from others, like current and former franchisees. You can find their names and contact information in Item 20 or Exhibit D.
How Much Will I Need to Invest? Items 5 and 6 list fees you will be paying to the franchisor or at the franchisor’s direction. Item 7 lists the initial investment to open. Item 8 describes the suppliers you must use.
Is the Franchise System Stable, Growing, or Shrinking? Item 20 summarizes the recent history of the number of company-owned and franchised outlets.

These are just a few of the questions addressed by the Franchise Disclosure Document. Reviewing all 23 Items and exhibits in the FDD should give you a better understanding of the franchise opportunity.

What Happens Once You Receive the Franchise Disclosure Document?

Once you receive your FDD, you’re required to acknowledge the receipt of this document if you wish to continue your franchising journey.

You can find the Receipt in Item 23. This receipt is typically sent digitally with the option of electronic signature to make the process smoother.

Signing this document doesn’t mean you are under any obligations to the franchisor. Your obligations don’t begin until you’ve signed the Franchise Agreement much later in the sales process.

You might be thinking, “Why do I have to acknowledge receipt if it’s not an obligation?” The Federal Trade Commission (FTC) requires franchisors to collect this information from potential buyers before they can move forward with buying a franchise.

This is a requirement by the FTC to ensure you’ve received the franchise disclosure document and provide accountability to franchisors who must provide the FDD to you in the sales process.

How Long Is the Franchise Disclosure Period?

Another reason your acknowledgement of receipt is important is because it marks the beginning of the 14-day franchise disclosure period.

This required period states franchisors must wait a minimum of 14 full days before any franchise agreements are signed and/or money collected. It applies to all 50 states.

Without your signed acknowledgement, the sale of the franchise can’t continue. Signing this receipt will ensure your franchise buying journey isn’t delayed.

There is also a disclosure period that requires you receive the franchise agreement a minimum of 7 full days before signing. Both periods can run congruently.

You’ll notice most FDD’s include a full copy of the franchise agreement. This is how both periods can be completed at the same time.

Check Out These Additional Resources

The franchise disclosure document is an important tool for potential franchisees. It gives you a wide range of information to help you find the best franchise for your needs.

At Jack in the Box, we work with our franchisees every step of the way and try to make the buying process as seamless as possible.

Here are some additional online resources you may like to check out:

If you have any questions, please contact our franchise sales and support team.