Owning a franchise offers several benefits for entrepreneurs. Buying a franchise means agreeing to follow specific rules and meet certain responsibilities.
This might be a change of gears if you come from an independent business background. To help you understand your role, before you buy a franchise, you and your attorney should review the Franchise Disclosure Document and Franchise Agreement.
Franchise Disclosure Document
The Federal Trade Commission requires a franchise owner to provide a prospective franchisee with information to allow the potential buyer to make an informed decision. The information provided is in a franchise disclosure document. The FDD is part of the FTC franchise rule. Click here for more about the FDD. Some states also have their own rules.
Certain Items of the FDD will be informative when it comes to understanding the level of support and independence you might have going forward. Items 9 and 11 disclose the franchisee and franchisor obligations. Items 8 and 16 will describe restrictions on what you will be able to sell and how you will source products and services. Importantly, Item 12 will explain whether you will have any protected territory. Read about how franchisees benefit from protected territories.
The Franchise Agreement should further define your responsibilities and the obligations of the franchisor.
How much flexibility the franchisee has with respect to the day-to-day operation of the business varies among franchise brands. The FDD and the Franchise Agreement are essential tools for understanding whether you want to be part of the brand that you are considering.
Many people who decide to purchase a franchise do so because they feel there is a good combination or balance of independence and support. However, that is based on personal leadership styles and an analysis of the specific franchise system and agreement.