In the world of buying and selling, “caveat emptor” is a big deal. The term is Latin, an ancient language, which implies that business dealings have always carried a degree of risk. And the bigger the investment, the more seriously you need to take this warning that means, “let the buyer beware.” Consider some of life’s biggest purchases and reflect on the due diligence required to make an informed decision.
- Buying a car
- Purchasing a house
- Buying a business
In the world of franchising, you are protected from uninformed decisions by the extensive due diligence process that brings transparency to both buyer (you) and seller (the franchisor) before a sale/transaction is finalized. One very important element of investigating a franchise business opportunity is the Franchise Disclosure Document (FDD).
- A requirement of the Federal Trade Commission.
- Often the decisive moment in whether to move forward with purchasing a franchise.
Steps to becoming a franchise owner
Becoming a franchise owner is a process, with each step bringing your closer to your decision. Ensuring a good fit on both sides, Home Franchise Concepts (HFC) has a proven path to follow to investigate becoming part of our franchise family of brands, and the FDD is an important part in the decision-making process.
- Step 1: Submit your contact information and begin to learn more.
- Step 2: Speak with one of our Franchise Licensing Team representatives.
- Step 3: Complete a Franchise Application, a form with information about you and your ability to buy a franchise.
- Step 4: Receive the Franchise Disclosure Document that fully outlines the franchise opportunity and the costs to own and operate your business, plus much more.
- Step 5: Complete a validation process of speaking with other franchise owners about their businesses, asking questions and gaining additional information.
- Step 6: Attend Discovery Day at our Home Office in Irvine, CA. Meet the Leadership Team, including brand managers and Admin support, and determine if your chosen brand is a good fit for you.
- Step 7: Sign your Franchise Agreement documents and pay your financial costs.
- Step 8: Attend two weeks of training and schedule your grand opening.
By Step 4 you’ve shown a genuine interest in franchise ownership and, at this point, the FDD becomes a critical step. By law, the franchisor must provide their FDD to a prospective franchisee at least 14 days before the prospect would sign a binding franchise contract or make any payment toward the sale.
What the FDD will tell you
The FDD is a wealth of information, giving you an up-close-and-personal look at the franchise business opportunity you are considering. The franchisor’s responsibility is to provide current, accurate data, and your responsibility is to carefully read the document, so you understand everything it says. At HFC, each of our brands recommend going through their FDD with your Financial Advisor, item by item, for explanation and answering any questions you may have. You may want to have a franchise attorney review the document with you, so you fully understand the provisions of the franchise opportunity.
- History and experience of the franchisor.The FDD needs to identify officers and directors, including their business experience and any corporate litigation or bankruptcy history.
- Costs involved in purchasing.This includes initial franchise fees, other startup costs, and an estimated range of the total cost. Additional and ongoing fees such as the royalty, marketing, and renewal fees must be acknowledged as well.
- Restrictions and obligations.The FDD must set forth the franchisee’s and franchisor’s obligations under the terms of the franchise agreement, including any restrictions to franchisee autonomy.
- Proprietary information.Additional materials, including audited financial statements, current franchisees and their contact information, financing programs, territory, trademarks, patents, and renewal or transfer provisions must be disclosed.
- Earnings potential.The FTC makes it optional for franchisors to supply information about the earning potential of a typical franchise territory. If data is provided, it must be as accurate and representative as possible, clearly labeling any assumptions or qualifications.
- Individual state requirements. In addition to the federal laws, many states may mandate additional disclosures or specify rules governing the terms of the franchise agreement.
There’s no place like Home Franchise Concepts
If you are interested in becoming a franchise business owner, you’ll find there’s no better place than with HFC. With 25 years in franchising and over 1,400 franchised territories in the U.S. and Canada across our three brands, we have a proven track record of stability and success. And remember, the Franchise Disclosure Document is mandatory reading before signing on the dotted line!
Call 1-800-420-5374 today or go online to Home Franchise Concepts to learn more about starting your own franchise business with HFC. Speak to a member of our Franchise Licensing Team or follow the Steps to Becoming a Franchise Owner. Evaluate all three brands at Find a Fit, and investigate veteran discount opportunities if you are a veteran.