Reading an FDD 101: Franchisees Share Their Tips

When it comes to reviewing a franchise disclosure document, it doesn’t hurt if a prospective franchisee decides to get a helping hand—or two. 1851 Franchise spoke with franchisees and garnered their tips for reviewing an FDD for the first time.

Showhomes franchisee Patricia Holmes, whose franchise is based in Denver, Colorado, sought help from a franchise attorney.

“I had a franchise attorney based out of Washington, D.C. whose sole focus and expertise is franchising,” Holmes said. “She walked me through every clause in the franchise agreement so that I understood what the risks were and what some of the language meant. As a new franchisee, this was all gibberish to me, so it was really good to have an attorney translate the legalese, if you will, into more normal language that I could understand.”

The Glass Guru franchisee Dan Lahti, whose franchise is located in Glenwood Springs, Colorado, advises prospective franchisees to make sure they “read and understand what the FDD is.” Like Holmes, Lahti also sought help from a franchise attorney.

“I had an attorney help me review it because it was kind of over my head,” Lahti said, adding that he also got advice from his business-savvy father-in-law.

When she began reviewing the FDD, Holmes cited trust and risk as her two major concerns.

“I was in corporate America for 20 years,” Holmes said. “When you’re hired by a company, there’s an agreement that this is what you’re going to do, and we’re going to pay you this amount for doing this work. You’re going to have various goals and objectives that you need to achieve and will be evaluated. With a franchise, though, there’s so much risk involved, so that was my main concern. Am I able to handle the risk and the stress involved with that type of undertaking?”

Fortunately, she was able to seek help in these areas from her franchise attorney. Holmes said her legal counsel helped her feel confident that Showhomes was a solid organization, one that was ethical and upfront about the costs and risks involved and what needed to be done in order to be successful. This helped her decide to franchise with the brand.

For Lahti, FDD concerns centered around “the fees and costs associated with the business.” These, he said, were clarified to his satisfaction by The Glass Guru headquarters. He was able to better understand where his money was going and how he would be supported, making the business opportunity that much more appealing.

Another point of emphasis for Holmes and Lahti was that prospective franchisees should be sure to speak with established franchisees for advice and insight about the brand.

“The other aspect of the process that helped me feel more comfortable, and ended up being the main reason I decided to go forward with the franchise, was actually talking to other owners in the Showhomes system,” Holmes said. “I talked to eight different franchisees. They all were coming from a little bit of a different place, but each helped me to feel more comfortable with the opportunity.”

As far as her main takeaway for prospective franchisees as they dive into an FDD for the first time, though, Holmes advised listening closely and asking a lot of questions.

“Take your time in making the decision,” she said. “Talk to other people. Get a lot of objective advice and then, in the end, it’s your decision. You have to be able to fish or cut bait. Asking questions will help you best evaluate how much risk you’re willing to take and if the opportunity is worth the risk.”