Why Do I Need a Strong FDD?
Your franchise disclosure document (FDD) may not be as exciting as your logo or slogan, but it’s the most important part of your brand as a franchisor. That’s because franchise candidates look to your FDD for the facts about your investment opportunity, and they use it to make final decisions.
As such, franchisors should put as much effort into their FDDs as they put into their websites and other branding materials – but few do. This is a missed opportunity. A strong FDD gets candidates through the last stage of the franchise recruitment funnel and helps you build a strong network of informed, fulfilled franchise owners.
Here are a few tips on how to develop a strong FDD:
- Set a High Standard
Would you roll out an ad campaign that was sloppy, unclear or uninspired? The same should hold true for your FDD.
Instead of viewing this document as a legal requirement, view it as an opportunity to impress and educate potential franchisees. By presenting a comprehensive, well-organized picture of your business, you build trust with candidates. Your FDD also gives you an opportunity to address pain points and set expectations.
Your FDD should contain strong writing that is clear and typo-free. Defining any unfamiliar terms, and double checking that your meaning isn’t obscured by corporate lingo helps create a strong franchise disclosure document
With 23 required items, developing an FDD that is both complete and clear-cut is no easy task. A franchise attorney or experienced franchise consultant or advisor can help you create an FDD that meets industry best practices and includes all necessary information. A clear FDD is important for legal reasons, as well. The Federal Trade Commission (FTC) does not allow franchisors to discuss any financial information unless it’s included in the FDD. Furthermore, missing or misleading information in your FDD can lead to disputes – legal or otherwise - with franchisees in the future.
- Be Transparent
The FTC mandated that franchisors compile FDDs after unethical franchise salespeople took advantage of aspiring business owners. This history – combined with some franchisors’ propensity to omit unflattering information – puts candidates on edge during this stage of the franchise recruitment process.
You can ease these concerns by remaining honest and transparent throughout the franchise sales process – especially in your FDD. While it might be tempting to soften or gloss over figures that raise questions about your system, don’t take this route. Qualified franchisees are savvy and know how to spot troubling obfuscations or omissions.
This is particularly true for Item 19 in the FDD, or the financial performance representation. Franchisors aren’t required to include information about the revenue and expenses of current operators, but doing so is a good idea. A transparent earnings report leaves a positive impression with potential franchisees, and if it shows strong returns, it becomes one of your biggest selling points. Be wary about including sales figures from corporate-owned locations, as this can look misleading, and be ready to answer any questions from candidates about discrepancies between corporate and franchised units.
- Read with New Eyes
Your FDD is an opportunity to impress candidates, but it also gives you a chance to strengthen your concept. Try reading your FDD as if you were a potential franchisee searching for a smart investment. What would draw you to this concept? What would concern you? Would you completely understand the business model?
Reading your FDD with “new eyes” helps you identify holes in your concept or tweak your proposed processes. You might realize your training program is not as robust as it should be or find a way to streamline operations. Don’t stop fine-tuning until you’re ready to present a concept that you, as a franchisee, would want to invest in.
Reviewing competitors FDDs is important as you develop or update your FDD, as well. Your candidates review other FDDs, so it is critical that you, as a franchisor, know what those include – especially in Item 19, the financial performance representation.
For help creating a strong FDD, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing more than 1,200 locations for five brands, Winmark Franchise Partners can help grow your brand through sound strategy and expert franchising advice.
For more information, contact us here or at (844) 452-4600.