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No Crystal Ball? No Problem. A Financial Disclosure Document Will Answer 3 Big Questions Before Opening a Business. The more you know ahead of time, the more peace of mind you'll have throughout the process.
Thinking about opening a business is simultaneously exciting and stressful. Unknown hurdles can stop some from achieving their dreams but getting a Financial Disclosure Document (FDD) might be just what you need to feel confident about moving forward. Franchises are required by law to provide FDDs, and, for many, the simple existence of this document is what sways franchisees to open a franchise instead of starting their own business from scratch.
As you're comparing franchise opportunities that interest you, always review their website to make sure you meet the minimum investment requirements and other specifications, such as a bachelor's degree or citizenship/green card. Then, connect with the franchises that might be a good fit and request their Financial Disclosure Document. Don't be overwhelmed by the length of the FDD—keep reading to see where you can quickly find answers to three of the most important questions:
1. How stable is the franchise?
New franchise opportunities can seem exciting, but when times are uncertain, stability may need to trump the newest potential fad. Plus, name recognition can put you ahead when it comes to marketing.
Leadership and experience are key to stability, so open the FDD and go to Item 2 to see who the leaders are and how long they've been with the franchise. This will quickly let you know if the executives (and the franchise!) have been around for sufficient time for you to be confident that the business has proven itself in the marketplace.
While you're in this part of the Financial Disclosure Document, take a quick look at Items 3 and 4 to see if there is anything that the franchise has been required to list under bankruptcy or litigation.
2. How much support will I get from this franchise?
Who would think to look in expected expenditures to find franchise support? However, this is where you will find subsidies or reimbursements in addition to expenses, so it's worth a quick review. Look for Item 7 to find these possibly hidden benefits—details may be in a notes section, so look over this section carefully. If you want to quickly see what Kumon offers in terms of incentives, they are all listed here.
Of course, training and ongoing support will be key, so be sure to ask once you are ready to explore deeper!
3. Will this franchise meet my needs?
Being able to meet financial needs is key and one of the most valuable parts of the Financial Disclosure Document is Item 19, Financial Performance Representations. This section will often give you information on sales, costs and profits or losses of outlets. This section can be overwhelming, so talk with the representatives of the franchises in which you're interested to make sure you understand the content, but keep in mind that to comply with Federal Trade Commission rules, the franchise representative can't provide information beyond what is listed and, therefore, can't tell you what you can expect to make from owning the franchise. You can, however, speak to franchisees who are listed in the FDD for additional information.
The Financial Disclosure Document is ideal for comparing clear cut categories when looking at franchises, but don't forget to consider nuances that could make your business easier or more enjoyable. For example, one of the reasons Kumon works so well for franchisees is that while it's been rated #1 in the tutoring category by Entrepreneur for 19 years, Kumon is actually a long-term academic enrichment program. Kids can start as young as age 3 (and stay for years!), and parents often enroll all their kids. This isn't something you'd see in the FDD, but it is significant in providing franchisees with a strong, stable business model.
Take a moment now to learn more about Kumon. Visit KumonFranchise.com, attend a webinar or call us at 844-509-2644. Investment starts at just under $75K, and Kumon provides up to $36,000 in subsidies. Plus, veterans can qualify for an extra credit of $10,000.