Disclosure documents and tips for franchisors
The Disclosure Document is one of the key elements of a Franchisor’s franchise documentation requirements, and the legal requirements for a Disclosure Document are set out in Regulation 3 to the CPA, while FASA has supplemented these requirements for its members, in line with its Ethical Franchising requirements.
The intent of a Disclosure Document is to provide a prospective franchisee with a realistic and honest view of the business opportunity being offered by the Franchisor, and to provide sufficient information, both in respect of the legal obligations arising out of a potential franchise agreement, as well as the financial aspects of the opportunity, in order for a prospective franchisee to conduct its own investigations into the business opportunity, in order to determine whether or not they see it as a viable proposition.
One of the key aspects to the Disclosure Document is to provide the prospective franchisee with insight into the Franchisor and the business opportunity, providing some history and background information as to how the franchise business has developed, how the brand associated with the franchise has been established, and how other franchisees have experienced working both with the Franchisor and the brand, and its acceptance and position in the market.
While needing to meet specific requirements, the Disclosure Document must be viewed as a living document, to be updated at least annually, and to be continually developed to reflect the evolution of the brand and the business opportunities being offered by the Franchisor, establishing its unique selling propositions, promoting its business system, and thereby enhancing its brand. It is a unique marketing tool for the Franchisor, and if well-constructed, while being compliant, can be a valuable tool in growing the franchise network.
While meeting the specific requirements of both the CPA and the FASA requirements may be viewed as merely a “tick-box” exercise, the Disclosure Document can be so much more.
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To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.
