If you are considering energy franchises – or any kind of franchise – you’ll need to know about the Franchise Disclosure Document or FDD. In today’s blog post we’ll discuss this important document and what it means for you and your franchise journey.
What is the Franchise Disclosure Document?
In many ways, the Franchise Disclosure Document holds the key to any franchise and, ultimately, whether it is right one for you.
Franchises are regulated in the United States by the Federal Trade Commission (FTC). As part of their efforts to protect consumers, the Franchise Disclosure Document was developed.
As The Balance Small Business explains, by law, franchisors must provide “the presale disclosure document (the ‘FDD’) to prospective franchisees necessary for them to make an informed decision prior to entering into a franchise relationship…. Franchisors are required to provide the FDD to prospective franchisees at least 14 days prior to them signing the franchise agreement, and the franchisee is entitled to receive the completed Franchise Agreement at least seven days prior to signing it.”
No matter whether you are considering energy franchises, sandwich franchises, or any other type of franchise, the FDD should contain the same 23 sections and must be written in plain English.
That said, the FDD does contain many financial figures and numbers – if that concerns you, you might consider finding an accountant or attorney to help you conduct a more detailed review.
What Kind of Information Will I Find in the FDD?
Franchise.org provides a complete list of the items that can be found in every franchise’s FDD. It’s a long document, yes, but there are no sections that you would want to skip over. While it’s critical that you review the entire document start-to-finish before signing any final franchise paperwork, if you are comparing several energy franchises here are some items to which you will want to give extra consideration.
Initial Franchise Fee (Item 5)
This is the amount you will need on-hand before beginning the franchise process. It entitles you to use your francisor’s brand name, and oftentimes to any initial training and support you’ll receive. Every franchise has a different initial franchise fee, so it’s a good place to start if you aren’t sure whether a particular franchise is in your current budget.
Other Fees and Expenses (Item 6)
Different types of businesses will have different operational costs. For example, if your business requires a retail location and staff, you might be looking at a more substantial investment. This section of the FDD will give you the complete picture of the funds necessary to start your new business, which will be helpful in your planning process.
Territory (Item 12)
You will want to be sure to pay attention to how your franchisor divides territories and whether or not you will have exclusive business in a particular area. What is the territory size and how is it assigned? These are some of the questions that will be answered in Item 12.
Financial Performance Information (Item 19)
These numbers will give you an idea of the franchises financial health and what kind of factors might affect business in the future.
Existing Unit Data (Item 20)
The Existing Unit Data shows how many franchises have opened and closed and where, which can be a good indicator of a franchise’s growth.
Why Should I Care?
The FDD is an excellent way to compare franchises and can help you determine whether a franchise is a good financial fit for your specific situation.
While reading the FDD is essential before making your final investment decision, you should also research or meet with members of the franchise’s leadership team in person (if possible), talk to current franchise owners, and find out more about the kinds of training and support a particular franchise offers.
When it comes to energy franchises, Supergreen Solutions is a leader in the sustainability business. To request a copy of our FDD or learn more about the comprehensive, continuous training we offer, contact us today!