Q. What Documents Are Needed to Establish a Franchise?
A. Three documents are crucial: the Franchise Disclosure Document (FDD), the Franchise Agreement and an Operations Manual.
Q. What is An FDD?
A. The Franchise Disclosure Document (FDD) prior to July 1, 2008 was known as the UFOC, informs qualified prospective franchisees of their rights and obligations before they sign your Franchise Agreement. According to the Federal Trade Commission (FTC), an FDD should give prospective franchisees “the material information they need in order to weigh the risks and benefits” of investing in your franchise. The FTC requires your FDD to address 23 specific items of information about your franchise.
Q. What Is a Franchise Agreement?
A. This is the legally binding contract between you and the franchise. It fully describes all your rights and obligations, as well as those of your franchisee. The Franchise Agreement sets the terms of your relationship with your franchise buyers, including costs, royalties and fees, taxes, patents and copyrights, territory boundaries, operational stipulations, and much more.
Q. What is An Operations Manual?
A. An Operations Manual is a detailed document providing your franchisees with instructions for every aspect of your business. Typically running in the hundreds of pages, operations manuals include direction on policies and procedures regarding accounting, human resources, sales and marketing, legal guidelines, and much more.
This document illustrates that adhering to the policies and procedures that have made your business thrive is crucial to your franchisees’ success. It gives franchisees clear, detailed direction and ensures consistency from one franchise to another. Most importantly it protects your business and brand.
Q. Can I Produce These Documents On My Own?
A. This is similar to defending yourself in court, never recommended. The FDD and the Franchise Agreement are complex and critical legal documents that define the terms of the relationship between you and your franchisees. If improperly written, they can leave you vulnerable to financial loss, lawsuits, regulatory action, fines and more.
Your Operations Manual is the document that directs your franchisees on precisely how to do business, protect the brand products and/or services. All three documents are very long and detailed. You and your franchisees both benefit when they are clearly, concisely, and knowledgeably written.
Q. Do I Have To Register In Every State?
A. Fourteen U.S. states require you to register your franchise before you solicit for sale. While the process is similar, there are key differences, and it is not uncommon for states to reject franchise registration applications simply because they lacked the proper forms or were not submitted in the proper order.
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