The Franchise Disclosure Document (FDD) Item 5 Explained

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We're going to be covering section/item five of the Franchise Disclosure Document (FDD), which is the initial franchise fee. These are the fees involved in acquiring the franchise, typically the franchise fees, advertising fees, and your royalties here. So essentially it's what are you going to put out of your pocket to the franchisor before you even get to the point where you're going to start operating.

In section/item five it's going to be the upfront cost that you're going to need to invest monetarily, which would include your franchise fee. In addition, sometimes there's inventory, equipment, and signage. These are the types of costs that are all going to be outlined in section/item five of the FDD. Now, to give you the big picture, sections/items five, six, and seven really all kind of relate together. They're just broken up into different sections and we’re not really sure why they do that.

So section/item five is kind of those initial hard costs that you're going to have to invest to become a franchisee. Section/Item six is more about the ancillary costs say if there are training or marketing fees, those kinds of fees. And then the most important is item seven which lays it all together and shows your true total investment.

What we’ve seen in the FDDs that we have had the opportunity to look at is that they're not always consistent.

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