The Importance of the Disclosure Document When Buying a Franchise
If you should be considering purchasing a franchise, there is a key document that you need to be familiar with. The franchise disclosure document contains detailed information that can in fact be legally binding, and to enter into a franchise agreement without reading and analysing all the information contained in the document can have serious repercussions. So what sort of information does this document contain? And why is it so important?
The Disclosure Document
The franchise disclosure document will set out (in no uncertain terms), what is expected of you as a franchise holder, with particular emphasis on your rights and obligations once you enter into the franchise agreement. While no conclusive information can be presented with regards to your expected profits, you will at least know of any fees that will need to be paid to the franchisor. This, along with rental space for the business, employee salaries, and running costs of the space will give you a clear idea of your ongoing expenses.
The Australian Competition and Consumer Commission has produced a model disclosure document, meaning that the format and pertinent information will be presented in the same fashion, regardless of the type of franchise. This is might not be all that pertinent if you have not read such a document before, however.
Different to a Prospectus
It's critical to realise that the franchise disclosure document is not to be confused with any type of prospectus that you might have received when you were considering purchasing the franchise. The prospectus should be considered more like advertising, using persuasive and sometimes speculative language, but the relevant details will be outlined in the disclosure document.
A Professional Review
It can be highly beneficial to have the disclosure document reviewed by a franchise lawyer. The information can be professionally analysed and can potentially highlight any misconceptions you might have based upon information that you have already received versus the reality (and legal obligations) of acquiring and maintaining the franchise. It's not as though the disclosure document will contrast with the prospectus to the point of deception, but a professional review of the document will ensure absolute clarity.
Up to Date Information
Please remember that the time you have taken to make a decision can also play a role. You might have received a franchise disclosure document some months before you have decided to purchase the franchise. There might have been a chance in the company's leadership or management structure, or even a downturn in profitability. This is why it can be prudent to ensure that the disclosure document you have reviewed is up to date.
Naturally, the decision to purchase a franchise is ultimately your own. Having said that, it can be extremely beneficial to have some professional assistance in reviewing all the pertinent information before the final decision is made.