Franchise Disclosure Document

A document required in many jurisdictions before a franchise sale, setting out the franchisor's fees, obligations, territory rules, litigation history and the terms governing renewal and resale.

Example

A buyer reads the franchise disclosure document and discovers the agreement's remaining term is only three years with no guaranteed renewal.

Important

It is the primary source for the continuing obligations that transfer with a franchised business, and reviewing it is not optional due diligence.

Related terms

• Franchise Royalty — An ongoing fee paid to a franchisor, typically calculated as a percentage of gross revenue, in exchange for continued use of the franchise system and brand.
• Franchise Fee — An upfront payment made to a franchisor for the right to operate a franchised business under its brand and system, separate from the ongoing royalty.
• Disclosure schedule — The document in which a seller lists the exceptions to what they are formally promising - the litigation, the defaults, the contracts that are not on standard terms.

Lessons that explain it

• Franchise royalties and goodwill amortisation both compound quietly over the holding period — Beyond key-person and concentration risk, a small-business purchase carries recurring costs and tax treatment that materially change the price a buyer can justify and the return a seller actually keeps - none of which shows up in a headline SDE multiple. This lesson is general information, not personal tax or legal advice, and rules vary by jurisdiction. (12 min)

All 578 terms in the Investing glossary