Franchise FDD Item 16: Restrictions on What the Franchisee May Sell

Item 16 of the FDD provides information about any restrictions on what the franchisee may sell as part of their business operations. This item is crucial for potential franchisees as it outlines the scope of the products or services they are allowed to offer within the franchise system.

Here are the key components typically found in Item 16:

16.1 Approved Products and Services:

• List of Approved Products/Services: A listing of the specific products or services that the franchisee is approved to sell as part of the franchise business.

16.2 Restrictions on Products/Services:

• Limitations or Restrictions: Details about any limitations or restrictions on the types of products or services that the franchisee is allowed or prohibited from offering.

16.3 Comparative Information:

• Comparative Information: In some cases, the FDD may include a table comparing the restrictions on products or services with those of other franchise systems within the same industry.

16.4 Approved Suppliers:

• Designation of Approved Suppliers: Information about whether the franchisor designates certain suppliers as approved or preferred for the products or services sold by the franchisee.

16.5 Changes in Approved Products/Services:

• Changes in Approved Offerings: Information about the franchisor’s right to make changes to the list of approved products or services, and the process for communicating such changes to the franchisee.

Purpose:

The purpose of Item 16 is to provide potential franchisees with a clear understanding of the scope of the products or services they are allowed to offer within the franchise system. This transparency helps franchisees assess the market potential, limitations, and alignment of the approved offerings with their business goals.

Tips for Potential Franchisees:

• Review Approved Offerings: Thoroughly review the list of approved products or services to understand the scope of offerings within the franchise system.
• Understand Restrictions: Understand any restrictions or limitations on the types of products or services that the franchisee is allowed to sell.
• Inquire About Changes: Inquire about the process and communication mechanisms for any potential changes in the list of approved products or services.
• Evaluate Supplier Relationships: If applicable, evaluate the relationships between the franchisor and approved suppliers and the impact on the quality and costs of offerings.

By thoroughly examining Item 16, potential franchisees can gain insights into the product or service offerings allowed within the franchise system and any restrictions or changes that may apply. This information is critical for franchisees to assess the market potential and alignment of the franchise business with their goals and capabilities.

LINK TO FRANCHISE DISCLOSURE DOCUMENT (FDD) ITEMS WITH BRIEF EXPLANATIONS ON FranchiseFDD.com

1. Item 1: The Franchisor and Its Predecessors, Affiliates, and Certain Employees
2. Item 2: Business Experience
3. Item 3: Litigation
4. Item 4: Bankruptcy
5. Item 5: Initial Franchise Fee
6. Item 6: Other Fees
7. Item 7: Estimated Initial Investment
8. Item 8: Restrictions on Sources of Products and Services
9. Item 9: Franchisee’s Obligations
10. Item 10: Financing
11. Item 11: Franchisor’s Assistance, Advertising, Computer Systems, and Training
12. Item 12: Territory
13. Item 13: Trademarks
14. Item 14: Patents, Copyrights, and Proprietary Information
15. Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
16. Item 16: Restrictions on What the Franchisee May Sell
17. Item 17: Renewal, Termination, Transfer, and Dispute Resolution
18. Item 18: Public Figures
19. Item 19: Financial Performance Representations
20. Item 20: Outlets and Franchisee Information
21. Item 21: Financial Statements
22. Item 22: Contracts
23. Item 23: Receipts

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