31 Dec How to Read a Franchise Disclosure Document?
All Franchisors prepare Disclosure Documents because the Federal Government requires every Franchisor to prepare this document. Franchisees can insist that the Franchisor provide a Disclosure Document each year.
The first thing to realise is that the Franchisor cannot choose what information they will include in their Disclosure Document. Each Franchisor has to answer some very specific and probing questions about their business. Disclosure Documents can be difficult to read because of the volume of information contained in the Document. But if you know how to read it, then you can tell a lot about what the Franchisor is like.
Would you like to know for instance, if the Franchisor has been involved in any legal proceedings with any Franchisees in the last 10 years? If so, do you want the court number so that you can see what the court decided? This is the kind of information that must be provided by a Franchisor.
Is the Franchisor in the habit of terminating or not renewing franchise agreements? The Franchisor must say how many times this has happened.
These are the kinds of important questions that Franchisors are required to answer. If you are a buyer of a franchised business then you need to know how to find these answers in a document that can sometimes be longer than the Franchise Agreement itself.
The solution is simple! Don’t go to the Disclosure Document first. Firstly you must look at the Franchising Code of Conduct. There is an annexure at the back. Each question has a number assigned to that question. The answer to each question must be numbered in the same way.
As you come across a question of interest in the annexure to the code then you should go to the same number in the Disclosure Document. There, you will find the answer.