CFE Franchise Development & Expansion Flashcards

What document provides a prospective franchisee with all legally required disclosures about a franchise opportunity in the US?

Answer: Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is the federally mandated document that franchisors must provide to prospects at least 14 days before signing any agreement.

Which FDD item discloses the estimated initial investment range a new franchisee should expect?

Answer: Item 7

Item 7 of the FDD details the estimated initial investment, covering all costs a franchisee will incur before opening.

In US franchise law, how many calendar days before signing must a franchisor deliver the FDD to a prospect?

Answer: 14 days

The FTC Franchise Rule requires franchisors to provide the FDD at least 14 calendar days before the prospective franchisee signs any agreement or pays any money.

What is the primary purpose of awarding protected or exclusive territories in a franchise agreement?

Answer: To prevent encroachment and protect franchisee investment

Protected territories prevent the franchisor from opening competing units or granting other franchises that could cannibalize the franchisee's sales.

Which metric is most commonly used to evaluate the success of a franchisor's franchise development efforts?

Answer: Number of qualified franchisee leads converted to signed agreements

Lead-to-agreement conversion rate directly measures the effectiveness of the development process from prospect identification through signing.

What is 'churning' in the context of franchise development and why is it problematic?

Answer: Re-selling failed franchise units repeatedly without addressing root causes

Churning refers to a franchisor repeatedly reselling struggling or failed units without fixing systemic issues, which exploits franchisees and damages brand credibility.