CFC CFC Franchise Due Diligence & Disclosure Documents

Question 1

How many calendar days before signing a franchise agreement or paying any money must a franchisor provide the FDD to a prospective franchisee under FTC rules?

Accepted Answer

14 days

Answer

The FTC Franchise Rule requires franchisors to deliver the FDD at least 14 calendar days before any agreement is signed or money is paid.

Question 2

How many items are contained in a standard FDD?

Accepted Answer

21

Answer

The FDD is structured around 23 standardized items, each covering a specific aspect of the franchise offering.

Question 3

Which FDD item lists all current and former franchisees, including their contact information?

Accepted Answer

Item 20

Answer

Item 20 of the FDD provides a list of current franchisee outlets and former franchisees who left the system in the prior fiscal year, including contact details.

Question 4

What is the primary purpose of a franchisee validation call during due diligence?

Accepted Answer

To gather candid firsthand feedback from existing franchisees about their experience

Answer

Validation calls allow prospective franchisees to speak directly with current franchisees to gain unfiltered insights about franchisee satisfaction, support quality, and actual unit economics.

Question 5

What does Item 12 of the FDD address?

Accepted Answer

Territory rights and exclusivity provisions

Answer

Item 12 discloses the franchisee's territory, including whether it is exclusive, protected, or subject to encroachment by other franchisees or company-owned units.

CFC - Certified Franchise Consultant Practice Test

CFC - Certified Franchise Consultant Practice Test

CFC CFC Franchise Due Diligence & Disclosure Documents