If you’re reading this article, you probably have some interest in owning a Dream Doors franchise. That being the case, you’re going to want to become familiar with one of the most important parts of the due diligence phase of the process – the FDD review. The following is the “Reader’s Digest” version of the legal part of the process – the basics.
To start with, let’s make sure you understand the basics.
Firstly in New Zealand it is not a legal requirement to produce a Franchise Disclosure Document, better known as an FDD. We are proud members of the Franchise Association of New Zealand (FANZ) and we adhere to their Code of Conduct and we provide every Franchisee with a copy of the FDD.
What to look for?
- Start with the company info. Each major leader in the company is required to list their background and their work history. While you’ll usually find that the founders have tons of experience in the industry that the franchise serves, you want to make sure that there is strong support from the franchising industry as well. It’s not enough that they understand just how their industry works. They must also have experience selecting the right franchisees and providing support to their franchisees.
- You’ll also want to look for any bankruptcy issues from the senior team. It could be that they just had some bad luck but you can and should inquire so you can make sure it’s not a repeating theme.
- Franchisors are also required to list any material litigation pending or past as this too could be a sign of an unstable franchise.
It’s important to note that the wording throughout the document will be written heavily in favour of the franchisor. Should this be a concern? Naturally, you don’t want to sign a document that’s unfair, but this is an area where franchising simply differs from many other types of legal arrangement. Because you’ll be sharing the Franchise company’s brand with many other Franchisees, the Franchisor – must have a strongly worded document that allows them to quickly take action against a bad operator. You want them to be able to protect the common name you all operate under. After you get a look at a number of FDD’s, you’ll see that they all have pretty strongly worded language, especially when it comes to protecting their brand.
Should you hire an attorney to review the FDD?
By all means, Dream Doors recommends you do, it pays to have a professional review of the document for you. BUT, make certain your attorney is a Franchise industry attorney. It’s a highly specialised area of law and not something an outsider will easily understand. And paying an outsider to get up to speed is not money well spent. Franchisors are required to give you the FDD at least 2 weeks before you can sign a franchise agreement but don’t hesitate to ask for it as soon as possible so you can do your homework. Once you’re fluent on the legal side of things, you’ll want to start your validation process. Only by doing your homework can you be well informed enough to make a decision about a Franchise. Ask lots of questions, takes lots of notes, and be diligent in your pursuit of a franchise and you’re much more likely to make the right decision.
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