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A franchise disclosure document outlines specific information about your franchise system. Further, disclosure documents are critical to assisting current franchisees in making informed business decisions day-to-day. Additionally, the document can help prospective franchisees decide whether or not to enter your franchise system. If you are a member of the Franchise Association of New Zealand (‘FANZ‘), it is a requirement under the Franchising Code of Practice (‘the Code‘) to provide a disclosure document in-line with the Code. However, volunteering the same information is still a good idea even if you are not a member. 

This article explains what you should include in a franchise disclosure document and how you should distribute this document.

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Contents of the Disclosure Document

When operating a franchise business, you must inform your franchisees of any updates or changes to your franchise system. Otherwise, they will be unable to make an informed decision when conducting their business. For this reason, a franchise disclosure document should outline: 

  • your name and physical business address (your registered office);
  • details about your business experience as well as any relevant qualifications;
  • key financial information about the franchise system;
  • details of any past or present bankruptcies, receiverships, or liquidations;
  • a brief history of the franchise;
  • examples of any trademarks or other relevant forms of intellectual property you use to market your business’s goods and services;
  • details of payments your franchisee must make;
  • any restrictions imposed on your franchisees such as exclusive territories;
  • the terms and conditions for the purchase of goods;
  • a summary of terms and conditions relating to termination, renewal, goodwill and assignment of the franchise; and
  • your primary obligations as a franchisor.

We explore some of these areas in further detail below. 

Financial Information

For prospective franchisees, access to key financial information is crucial to understanding how financially stable your franchise is. Additionally, it can help them make an informed decision regarding whether to enter the franchise agreement or not.

The disclosure document should clearly state any risks or previous issues within your franchise. This is why you should be frank about any bankruptcies or receiverships the business has undergone.

You might include any financial projections in your disclosure document. This can help prospective franchisees understand how your franchise will likely perform and what targets you need to achieve to replicate your previous success.

Additionally, in your disclosure document, you might also include financial information outlining the fees which your franchisees must pay. For example, your franchisee will likely pay an initial fee upon entering the franchise and ongoing fees for the duration of the agreement. This is essential information since prospective franchisees can ensure they have enough capital to cover the initial investment in your franchise.

The Franchise System

The disclosure document should provide a general overview of your franchise system and its particulars. For example, you may outline how:

  • the system works;
  • you use your business’s intellectual property to market goods and services;
  • franchisees will occupy the business premises; and
  • your franchise will receive goods.

You may want also to provide prospective franchisees with an operations manual. This manual details how your franchise system works and any relevant training necessary upon entering the franchise.

Exclusive Territories

Not all franchise agreements impose exclusive territories. An exclusive territory is an area where only one franchisee can operate. This can ensure franchise businesses do not have to compete in the same market area.

If you choose to include an exclusive territory, you should outline this in your disclosure document. This ensures prospective franchisees understand where and under what restrictions might they be able to operate the franchise business.

Using Your Disclosure Document

If you are a member of FANZ, you must have a disclosure document. You should provide a disclosure document to all prospective franchisees at least 14 days before they sign the franchise agreement. In addition, you should update the disclosure document at least once a year.

Even if you are not a member of FANZ, it is still good practice to use a disclosure document. After all, a disclosure document’s principal aim is to provide prospective franchisees with the necessary information about your franchise. Moreover, this information will help them make an informed decision about purchasing a franchise outlet. Furthermore, the disclosure document can give them greater confidence that they are making the correct decision when making their initial investment in your franchise.

Key Takeaways

A franchise disclosure document sets out some key information about your franchise system. It can help franchisees make informed decisions relevant to your franchise system. If you are a member of the FANZ, it is a requirement under the Franchising Code of Practice to provide a disclosure document in-line with the Code. However, even if you are not a member, any good franchise should volunteer the same information.  

If you have any questions about the disclosure document, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What is the Franchise Association of New Zealand?

The Franchise Association of New Zealand (FANZ) is the industry body that represents franchises at a government level. Members of the FANZ must comply with the Franchising Code of Practice.

Should I become a member of the FANZ?

If you become a member of the FANZ, you will need to comply with their requirements when running your franchise business. However, there are benefits to being a member. For instance, you can enhance your business’ credibility by benefiting from FANZ’s image, as they typically represent franchises that commit to the best practice possible. 

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