A Franchisee’s Guide to Navigating the FDD’s Item 11

Every item in the Franchise Disclosure Document, or FDD, is important for a franchisee to read and understand. But Item 11 is essential because this is where you can understand more about what your relationship will be with the franchisor. Since many people like the idea of franchising because of the support the system it provides, Item 11 lays out the training program, advertising plan, technology investments you are required to make and more.

“The rules of Item 11 are that you must state what the franchisor will do to help the franchisee before and after the opening, and what obligation the franchisor and franchisee have in the agreement,” said Carl Zwisler, Principal Lawyer at Gray Plant Mooty Law Firm.

Item 11 is simply titled, “Franchisor’s Assistance, Advertising, Computer Systems, and Training,” and each section provides key information to help you evaluate your decision on which franchise is the right business opportunity for you.

Assistance

Typically before and after the opening of a franchise location, the franchisor and franchisee will have a list of obligations to abide by the agreement. The Assistance section explains how the franchisor will support the opening and what the franchisee may need to do or what limitations they have for their grand opening in addition to once they are up and running. No one wants to be surprised with how they have to run their business, so it is important to review this section, especially if you are not fully reading the franchise agreement yourself.

Advertising

National advertising, local advertising, advertising co-ops and promoting a location’s grand opening are all items that may be addressed in this section of Item 11. You will want to see how much money you may need to contribute to advertising and what you receive from the franchisor’s efforts. Max Staplin, Associate at Fisher Zucker LLC, points out, “You can see what the franchisor spent on advertising items last year and get a better idea of how it will benefit you from that information.”

Many franchises will have a National Advertising Fund to help increase brand awareness on a broader scale and in the areas where the brand has locations or is trying to develop.

Zwisler explains more about the advertising fund, saying, “The money is pooled and distributed to a professional for advertising purposes. Whether everyone contributes the same or whether there are limitations on what it’s used for will be explained in this section. Is there franchisee input into advertising? What is the voting like? You will want to review all of these rules.”

Computer Systems

All franchises require some investment to keep the system running smoothly, efficiently and to try to increase revenue. This section is where you will find how much you are required to invest in technology by the franchisor during the term of the agreement. Whether it is hardware, software, the website or your social media, you will know how much it will cost and any general fees you might have to contribute.

Training

For those entering a new industry or for anyone who is relying on being trained how to run a business, the Training section in Item 11 may be the most important to review before signing on with a brand.

“As a prospective franchisee, it’s important to know how extensive the training on the business will be. If you are getting into a new industry, you will want to make sure that the initial training program is detailed and well rounded so you can gain the knowledge you need to run the business,” said Staplin.

Details including the number of hours you will train and the type of training (classroom or online) should be described by the franchisor thoroughly. As a potential new franchisee, you should be looking for the type of training that will be best for your learning and the suite of skills you will need assistance on the most.

Another key aspect of the training description is the Operations Manual. Although it won’t provide you with the full manual, the Table of Contents will most likely be there for you to see how detailed the manual that they provide for franchisees is for running the business day to day.

“You can see how many pages are devoted to each subject. Especially when a prospect is looking at  a newer franchise, you’ll want to know how much of the operations has been put in writing. And sometimes, you will find that these manuals are not really fleshed out,” said Zwisler.

Not only will looking at an FDD help you understand the particular franchise system better, but it will help you compare different franchises in the same industry to one another to see which one offers the right training and support for your strengths and weaknesses as a business owner. After reviewing, you will be armed with helpful questions to ask the franchisor and franchisees that can help you make your decision.

You can also have your lawyer look over the FDD and see how professionally it is done. Staplin explains, “Item 11 won’t expose a weakness of the franchise system, but if there is something a franchisee won’t be comfortable with, this is where they will find it.”

Item 11 may not have flashy numbers to show you how much money you will be making, but it will give you a much better sense of what your day to day life as a business owner will be, and how the franchisor will be involved in helping your business succeed.

“It’s important to look at your obligations as a franchisee in Item 11 to make sure they align with your expectations of running your business,” said Staplin.