The Cold Stone FDD

"The multi-unit investor has access to regulatory documents as well, but how useful is the regulatory information for making investment decisions? Are the other sources and types of information comparable to what the sophisticated stock investor has available?

A 10(k) and an FDD have some content similarities (e.g., both have audited statements and descriptions of management). However, a 10(k) relates directly to the company the sophisticated investor is considering investing in--whereas an FDD intertwines information about the franchise system with information about the company that controls the system that the multi-unit operator is considering investing in. Thus, an FDD's value as a guide to evaluating a franchise unit investment is far less than its value as a guide to evaluating the company that controls the system.

Over the years, the FDD has been seriously misused and misinterpreted regarding system performance. In my opinion, prospective franchisees, the media, lenders, and all sorts of experts have tried to infer some system performance attributes and investment potential from many sections, most notably Item 19 and Item 20. From a potential investment standpoint, the information contained in an FDD simply tells a small portion of the story, particularly as it relates to system performance. Combined with the absence of the quarterly reports publicly traded companies are required to issue, an FDD's usefulness to the multi-unit operator's investment decision process is rather limited."  -By Darrell Johnson  The FDD Is Not Enough

"The FDD doesn't even give the franchise investor sufficient information upon which to make an investment decision. The FDD has become more a charade than anything else.

It tells you what the contract "means" - which people/lawyers who can read ought to be able to figure out. The contract is now one that no one in his right mind would ever sign unless there really was a Leprechaun standing there in a funny hat next to a pot of gold. If you can't figure  that out by simply reading the thing, then you need to go back into your former glorified clerk lifestyle where you were euphemistically called "Director of This and That"."  

                                                                                         - By RichardSolomon 2011-09-30 08:53

In this section we examine the Cold Stone Franchise Disclosure Document


Document Source:  (Title to Page 35)
Document Source:  (page 35 to 75)