The FDD - Items 1-8
Item 1. The franchisor, its predecessors, and affiliates – this section will
inform you of the franchisor’s name, description of business, address, affiliates,
state of incorporation
Item 2: Business experience – you will understand who the officers, directors,
and executives of the franchise and their prior business experience. It will give
you a general biography of the business itself.
Item 3: Litigation – This item requires that only past criminal, relevant
current and civil litigation involving the franchise and it’s management be disclosed.
Be careful to determine which are serious and which are frivolous.
Item 4: Bankruptcy – This item will allow you to see if there is a pattern
of bankruptcy within the franchise or its owners.
Item 5: Initial franchise fee – This item discloses the franchise fee and
other initial fees that are expected by the franchisee. It will explain if the fees
are uniform or the range and factors if the fee is not uniform.
Item 6: Other fees - This item provides a description of all other recurring
fees or payment that the franchisee must make to the franchisor, including: royalties,
advertising, training fees, transfer fees, audit costs, renewal fees, and any other
miscellaneous fees for service that the franchisor provides.
Item 7: Initial investment – This items is a detail table describing all
fees needed to establish your franchise. In addition to a range of amount the franchisee
must invest for each start-up expenditure, the franchisor discloses the method of
payment, when it is due, who the payment will be made to, whether they payment is
refundable, and whether it is financed.
Item 8: Restriction on sources of products and services - This item will
describe business practices that the franchisor feels in necessary for success of
the franchisee. There may be restrictions on what the franchisee can buy for the
business; where they can purchase those items; specifications for any of the goods,
services, supplies, fixtures, equipment, inventory, computer hardware or software,
or other items the franchisee uses in the business. There are many reasons that
a franchisor restricts sources, including a desire to ensure consistency and quality.
The franchisee may be obligated to purchase or lease products and services from
the franchisor or from suppliers approved by the franchisor. The franchisor usually
has the right to approve or revoke approval of a supplier, or to make changes to
its specifications for products and services the franchisee uses.
Information obtained from the FBA - for additional information go to
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