Franchise information provided in the FDD can/should be investigated
How can I verify certain franchise information provided in the FDD? Specifically, my question concerns a particular franchise system I’m studying. I’m wondering how I can verify some of their claims for the type of set-up they promise. Is there a service that I can hire to verify such data? Or better yet, is there some other venue for verification? With an investment of nearly $200,000, I don’t want to take someone’s word for it.
Franchise information provided in the FDD is the franchisor’s word, but is it their bond?
Yours is an unusual question. Not because it’s not real to you or real in general, but because it has never been asked before.
Let’s start with an item that we love to see as franchise information provided in the FDD (Franchise Disclosure Document). That would be an Item 19 FPR or financial performance representation. We love to see that information because the franchise is making some form of earnings or financial performance claim about its franchisee network. The information is to be backed up by accessible documentation proving the FPR. Ask for it, have your accountant review it and back it up with investigation.
The same is true of any other information found in the FDD. While franchisors are not accustomed to such critical investigation, you can compare details of the claims against the data collected from the units used to create them. But even if you don’t go to that extent, no one should buy into an unfamiliar franchise system without performing adequate pre-purchase due diligence and that would include examining the franchise information provided to potential franchisees.
Of course, existing franchisees and their experiences of delivery relative to promises are a great indication of future performance.
All of that said, we would be much more concerned with what a franchisor says ‘outside of the FDD’ rather than what is written in it. Sales people (both employees of the franchisor and brokers/consultants alike) may make promises in the heat of the process that the franchisors may not be aware of or willing to act on.