What Atlanta Restaurant Franchise Buyers Should Know About the Franchise Disclosure Document

Before you buy a restaurant franchise learn about the items that are not disclosed in a Franchise Disclosure Document.

When buying a restaurant franchise in Atlanta there is information about the franchise that is disclosed by law and in accordance with the Federal Trade Commission regulations. The information is available in the Franchise Disclosure Document and can be helpful when you are looking to invest however, there is information that does not have to be disclosed by law but is crucial to your investment in a restaurant franchise. Here are five essential items that are not disclosed in a Franchise Disclosure Document:

1- If you are buying a restaurant franchise for the first time you should be aware of Item 7 of the Franchise Disclosure Document. Many new restaurant franchise buyers are caught off guard by Item 7 which requires you to provide an estimate of the amount of working capital you will need for the initial three months after opening the restaurant franchise. According to the Franchise Disclosure Document the three month estimate is known as “Additional Funds.” When you review the initial build out plus the estimate of additional funds you must take into consideration that it will probably take up to two years to break even which means you must plan for operating in the red with out of pocket costs during this time period.

2 – The financial information of the current owner of the franchise is not required to be disclosed to potential restaurant franchise buyers. The disclosure of the financial information is optional and can be included in Item 19 Financial Performance Representations or FPR’s Financial Performance of Franchise Owners. If the franchise owner opts to disclose the information you will find it under Item 19 however, they are not required to provide this information under the laws of the Federal Trade Commission. This can leave the restaurant franchise buyer with many questions in mind about what their actual return on investment will be and if they should even invest in the franchise to begin with. The odds are that less than 15 percent of current franchise owners disclose their financial information and although the books and records are available, they are not freely available to potential buyers of the restaurant franchise.

3 – Item 20 of the Franchise Disclosure Document discloses the name of the current franchise owner but information on the current performance of the franchise is conveniently left out. If you search the Internet for information on purchasing a restaurant franchise you will find tons of advice on approaching the owner to learn more about the franchise. The problem with this is they will provide you with biased information about the restaurant franchise and omit the facts that you need to know about the business. If you ask them for financial information and current performance they will most likely refuse to disclose this data if they have made some mistakes and do not want to reveal this information in the financial statements. This will leave you with a void in the information you need to obtain in order to make an informed decision about the investment.

4 – As a restaurant franchise buyer it is important to be aware that if you are lucky enough to get the owner to share their financial information with you they may exaggerate the numbers in an effort to sell the franchise. More often than not the income is sometimes in the ballpark of around $30,000 which amounts to a very minimal hourly wage.

5 – The last piece of undisclosed information in the Franchise Disclosure Document is the data that reveals the turnover rate of franchise ownership. The only information that is required to be disclosed is the number of units in operation and the number of units that have closed. If people bought franchise restaurants in Atlanta from We Sell Restaurants and they have flipped them twice, it still counts as only one unit in the data of the Franchise Disclosure Document and does not include information on the depreciation of the unit.

Regardless of the drawbacks the franchise market in Atlanta continues to thrive and there are many franchise buyers out there looking for their next opportunity. If you are aware of the drawbacks you can face the market armed with the knowledge you need to find a profitable investment.

To learn more about buying or leasing Atlanta restaurants CLICK HERE