And What to Look for in a Franchise Disclosure Document (FDD)
For entrepreneurs, starting a business is the culmination of extensive research, careful planning, smart money management and good old-fashioned hard work. Buying a franchise is no less daunting, and the list of questions can seem endless.
If you’re considering buying a franchise, ask these three questions first:
- What does the day-to-day actually look like?
- What happens after I sign?
- Can I talk to current franchise owners?
Check what you learn against the Franchise Disclosure Document (FDD), the federally required disclosure that tells you more than any sales pitch.
Winmark knows how weighty these decisions are. As North America’s leading resale retail franchisor and for more than 30 years, we’ve helped potential franchisees consider every aspect of ownership before investing in one of our five resale brands (Once Upon A Child, Plato’s Closet, Play It Again Sports, Style Encore, Music Go Round).
Questions to Ask Before Buying a Franchise (Beyond the Bottom Line)
The most frequent question we hear is, “how much money can I make?” While we know this is a critical consideration, our experience tells us there are three key questions potential owners should also consider, along with one crucial document they must not overlook.
1. What Does a Franchise Owner’s Day-to-Day Actually Look Like?
Owning a Winmark franchise is a hands-on job: our owners are operators who run their stores day to day. Many are first-time franchisees, and a large number are Winmark customers who have firsthand insight into the power of our business model. We encourage potential franchise owners to take a thorough look at what their workday will involve.
Day to day, expect inventory management, marketing, customer interaction, employee training and scheduling, basic accounting and the physical demands of running a store with a considerable amount of inventory. Because we want our owners to succeed, we can’t stress enough how important it is to match your lifestyle goals with the actual work.
2. What Happens After I Sign a Franchise Agreement?
After you sign, a reputable franchisor should lay out exactly how you get to opening day. At Winmark, our training program is one of the most comprehensive in the franchise industry.
Winmark helps new franchise owners with these pre-opening steps:
- Site selection
- Build-out guidance
- Marketing
- Inventory acquisition and management
- Store set-up and merchandising
- Point-of-sale system training
- Staffing considerations
Winmark’s formal franchise training includes 65 hours of classroom instruction designed to familiarize franchisees with various marketing platforms and operating systems. Our field reps stay actively involved after opening day, ensuring new partners continue to adapt and thrive.
3. Can I Talk to Current Franchise Owners?
Yes, and you should. We think there are few better ways to get an honest read on what ownership entails than talking to an actual owner, and unfortunately, this question is often overlooked.
Winmark encourages potential franchisees to seek out and ask questions of current Winmark franchise owners. In fact, our culture is built on clear communication between brands and store owners. As a corporation, we actively listen to and value the feedback our owners provide. New franchisees can ask anything from how Winmark supports owners to the best ways to engage customers. Staffing and recruiting suggestions, marketing tips and community relations insights are also great subjects to discuss.
What to Look for in a Franchise Disclosure Document (FDD)
The Franchise Disclosure Document (FDD) is a legal document, required under the Federal Trade Commission (FTC) Franchise Rule, that organizes what every prospective franchisee needs to know into 23 “Items.” Think of it as the non-brochure, non-pitch outline of ownership. It is so important that franchisors must give prospects the document at least 14 calendar days before signing an agreement , giving time for careful review,
The FDD covers the business, financial and operational details every prospective owner needs. Here are six key areas to review, with the Item numbers to find them:
Costs and Fees (Items 5-7)
The FDD outlines the total investment required, including upfront franchise fees, ongoing royalties and other recurring fees.
Support and Training (Item 11)
All elements of the franchise development program, before and after opening, are spelled out.
Financial Performance Information (Item 19)
This is the section you’ve been waiting for. Also called the financial performance representation, it covers any sales or profit data the franchisor chooses to share and how that data was calculated.
Rights and Restrictions (Items 12 and 17)
Think of this as the guardrails for your partnership and an indicator of how much control you’ll have over your store. Territory, renewal, transfer and termination terms are all included here.
Franchisor Track Record (Items 3, 4 and 21)
These crucial Items cover litigation history, bankruptcy history and the financial health of the franchisor (as shown in its financial statements), both excellent indicators of your future partner’s operations and culture.
Frequently Asked Questions About the Franchise Disclosure Document
How long do I have to review an FDD before signing?
Under the FTC Franchise Rule, a franchisor must give you the FDD at least 14 calendar days before you sign a binding agreement. Use that time to read every Item and call current owners.
How many Items are in a Franchise Disclosure Document?
Every FDD contains 23 Items. They cover everything from the franchisor’s background and litigation history to fees, investment costs, territory, training and financial statements.
What is Item 19 in an FDD?
Item 19 is the financial performance representation. It covers any sales or profit data the franchisor chooses to share and how those numbers were calculated.
Do I need a franchise attorney to review the FDD?
The law doesn’t require one but may be beneficial. A franchise attorney can explain the legal terms, especially in the rights and restrictions Items, and an accountant can help you interpret the financial performance and financial statement Items.
What training does Winmark provide to new franchise owners?
Winmark’s training includes 65 hours of classroom instruction on our operating system, plus help with pre-opening steps such as site selection, build-out guidance and store set-up. Our field reps stay involved well past opening day.
Choose a Franchisor Who Values Its Partners
As a company, Winmark is committed to empowering our franchisees to make a real difference in the world. Our sustainable business model reduces our impact on the earth and encourages community-building through the in-store exchange of high-quality, used clothing and gear.
Over the last ten years, 98.7% of Winmark franchise agreements up for renewal have been renewed, which we believe is a clear indicator of our commitment to franchisee – franchisor success. But don’t take our word for it. Learn what day-to-day franchise ownership looks like, ask about ongoing franchise support, and talk to other owners for an honest look at their challenges and successes. And don’t forget to review the FDD with a fine-tooth comb.
When you’re ready to take the next step, explore Winmark franchise opportunities. We’d love to talk about our brands and our purpose-driven business model. We look forward to hearing from you!