Have you ever wondered what it takes to be your own boss in an industry you’re passionate about? Home care services can present fulfilling and potentially lucrative opportunities for entrepreneurs. As a franchise owner, you’ll have the means to build an impactful business that makes a difference in your personal life and community — even if you have no previous experience in home care! Before launching your business, you’ll want to know the full terms and conditions of a franchise disclosure document (FDD).
An FDD is a legal agreement franchisors must provide to franchisees before they invest in a franchise. This document is required for all entrepreneurs or prospective franchisees to make informed decisions. If you’re interested in owning a home care business, it’s important to thoroughly review your FDD to learn the responsibilities, benefits, costs and risks.
An FDD — sometimes called a franchise disclosure document — has many moving parts, so be sure to familiarize yourself with the document. Here are some common questions you might have about the role an FDD plays in purchasing and owning a franchise business.
1. What Is an FDD Used For?
The FDD gives potential franchisees information about the franchisor, including:
Costs
Litigation history
Franchisor controls
Affiliate companies
Contractual obligations
Systemic strengths and weaknesses
The FDD also serves the purpose of outlining the legal relationship between the franchisee and the franchisor. The document should contain details about the franchise officers and other franchises in the network. As a potential franchisee, you use this document to weigh the benefits and drawbacks of the investment.
2. When Do I Receive the FDD?
According to the Federal Franchise Rule set by the Federal Trade Commission (FTC), the franchisee must receive the document at least 14 days before signing any agreement. You do not have to pay the franchiser before receiving and reviewing your FDD.
3. When Do I Sign the FDD?
You can sign the FDD once you’ve read the entire document. Keep in mind that once you sign the FDD, this does not mean you’ve legally agreed to purchase a franchise. Your signature on this document demonstrates your serious interest in the business relationship. Once you sign the FDD, you have 14 days to determine if you want to move forward with the franchise.
4. How Often Should My FDD Be Updated?
Laws and regulations vary, but most franchisors must update the FDD within 120 days of their fiscal year-end. The franchisor can review their programs and change the FDD, such as policy updates. If significant changes occur during the year that impact the FDD, they must update it quarterly to keep transparency with all potential franchisees.
Requirements of an FDD: What Your Investment Looks Like
An FDD features 23 disclosure items or sections for the franchisee to review before signing the document. The parts of an FDD include:
The franchisor, parents, predecessors and affiliates: This describes the franchisor and how long it has been operating.
Business experience: This section outlines the experience and professional information of the franchisors, executive team, officers and directors running the franchise.
Litigation: This part details past and present civil and criminal litigations, including pending actions and materials actions, against the franchise or its management.
Bankruptcy: This information covers bankruptcies involving the franchise, its predecessors, its affiliates or the franchisor.
Initial fees: This explains the initial expenses the franchisee is required to pay.
Additional fees: This section describes hidden, undisclosed or other charges the franchisees must pay.
Estimated initial investment: This section estimates the low and high range of the initial investment, including working capital and expenditures required to launch the business.
Restrictions on sources of products and services: This describes any required purchases of goods and services and any financial relationships between the franchise and suppliers.
Franchisee’s obligations: This reference table outlines the franchisee’s legal obligations in the agreement, including site selection and termination obligations.
Financing: This section includes any financing arrangements the franchisor offers and the terms and conditions.
Franchisor’s assistance, advertising, computer systems and training: This part outlines the services, training programs, ongoing assistance and business coaching the franchisor will provide to the franchisee.
Territory: The franchisor must describe any geographical restrictions it imposes on the franchisee, such as whether they will receive a protected territory.
Trademarks: This section discloses any trademarks registered within the franchise system, their registration status and whether they are under dispute or conflict.
Patents, copyrights and proprietary Information: This describes patents, copyrights and protected information not covered under the previous item.
Obligation to participate in the actual operation of the franchise business: This explicitly describes the franchisee’s role in the business operations and whether their full-time, direct participation is expected.
Restrictions on what the franchisee may sell: The franchisor must disclose approved goods and services the franchisee can sell as part of the franchised business.
Renewal, termination, transfer and dispute resolution: This section summarizes the franchisee’s legal rights, restrictions and obligations in the described processes.
Public figures: This section outlines all individuals, including celebrities, whose names or physical appearances are used in the franchise and their total compensation.
Financial performance representations: This optional item allows the franchisor to estimate the franchise’s financial performance.
Outlets and franchisee information: This lists the franchise locations in operation, including company-owned and franchised outlets and their contact information.
Financial statements: This section includes three years of audited financial statements, balance sheets, statements of operations, cash flows and owner’s equity.
Contracts: The franchisor provides the franchise agreement, which may include product supply agreements, financing agreements, personal guarantees, software licensing agreements and development agreements.
Receipts: The final item of the FDD requires the franchisor to review the document and provide copies of the receipt. The franchisee must sign the document to confirm they received the FDD.
What to Expect in an FDD
The franchisor and franchisee both have responsibilities when determining how the business relationship will be conducted. According to the FDD, the franchisor must:
Market and advertise the brand
Provide training materials for franchisees and employees
Evaluate the franchisee
Provide vendor recommendations
Comply with the FDD
Meet financial and legal obligations
Run the business lawfully
Establish quality standards for products and services
Attach any required exhibits in the FDD
Provide copies of the franchise agreement
Distribute a complete FDD to the franchisee at least 14 days before accepting any money or signatures
Managing the business according to the franchisor’s expectations
Creating demand for services in their area
Accomplish Your Goals With Our Supportive Franchise Network
If you’re interested in owning a home care franchise, you need a franchisor that can empower you along your journey. At HomeWell Care Services, we invest in our franchisees with personalized support, training and industry education, including our franchise management software.
Our mission is to empower entrepreneurs like you to accomplish business ownership goals. Our resources and programs are designed to help you build local brand awareness and strengthen your reputation in your community. Contact us today to learn more about becoming a HomeWell Franchise Owner, or download your free franchise kit.
