Initial Franchise Disclosure Document (FDD) Research (Step 6 of 18)
So, you just got an FDD
What to focus on in the FDD
This is stage 1 of reading the FDD. You don’t need to read the entire thing. In fact, you don’t even need to read half of it. Let’s just go through some major items that will help you understand if it’s a good fit.
Item 1- Ownership. Is it owned by PE? For how long? When was it sold? When was it founded?
Item 2- Leadership team- Longevity? Background experience?
Item 3- Litigation- is it proportional to the size of the brand. Are they recent? What are they about?
Item 4- Bankruptcy- should be blank
Item 12- Size of the territory and how it is cut up. A small territory is usually a non-starter but the only way to know if it’s small or not is to compare it to the size of other franchises. You can either go download FDDs online or, if you work with me, I will give you that information.
If you want, which you likely will, you can check out Item 19 to see the earnings claims.
Outside research
You need to take what you learned from the FDD and start doing outside research. What else does the PE company own? How were previous outcomes? Do they have lawsuits?
Look up the leadership team online and learn everything you can about them, noting down positive and negative notes.
Look up litigation and bankruptcy against everyone involved in the business.
This will take a few hours which is why you only are expected to read 5 items this week. Add questions and mark them as important for your next call with the franchisor.
Next up: Diving Deeper
You are going to have ongoing calls with the franchisor about all the different elements of the franchise. You will slowly build your financial models, speak to franchisees, and finish reading the FDD. Then you will have a call down the road reviewing the FDD in its entirety.
