If you’re seriously considering buying a franchise, eventually someone is going to hand you a Franchise Disclosure Document, or FDD.
It may not be the most exciting part of buying a franchise, but it is one of the most important.
After more than two decades working inside franchising, my advice is simple:
Don’t treat the FDD like paperwork. Treat it like a research tool.
I’m Erin Pate, Founder and CEO of FranPursuit. I’ve spent more than 20 years in franchise operations, directing hundreds of franchise startups and working with franchise owners, leadership teams and emerging franchise systems.
Today, I help prospective owners understand opportunities and navigate the franchise discovery and due-diligence process.
And the FDD is a big part of that process.
What Is a Franchise Disclosure Document?
A Franchise Disclosure Document (FDD) is a legal disclosure document that provides prospective franchisees with important information about a franchisor and its franchise opportunity.
Under the FTC Franchise Rule, covered franchisors must provide an FDD containing 23 specific categories of information, including fees, estimated investment, franchisee obligations, training and support, territory, financial performance information, franchisee data, financial statements and contracts.
Think of it this way:
The FDD helps you look underneath the brand and better understand the business you’re considering buying.
It is not a sales brochure, and it is not a guarantee of success.
When Should You Receive the FDD?
Under the FTC Franchise Rule, prospective franchisees generally must receive the FDD at least 14 calendar days before signing a franchise agreement or paying money to the franchisor or its affiliate.
My advice?
Ask for it early.
Give yourself time to read it, identify questions and consult qualified legal and financial professionals before making a decision.
What Are the 23 Items in an FDD?
Here’s what you’ll find in a Franchise Disclosure Document and what I recommend paying attention to.
Items 1–4: Who Are You Getting Into Business With?
Item 1 — The Franchisor and Related Companies Background on the franchisor, parents, predecessors and affiliates.
Item 2 — Business Experience Experience of key executives and leadership.
Item 3 — Litigation Required disclosures about certain litigation involving the franchisor and related parties.
Item 4 — Bankruptcy Required information about certain bankruptcy histories.
Erin’s Take: Don’t evaluate the logo. Evaluate the organization behind it. A great concept still needs experienced leadership and infrastructure to support franchise owners.
Items 5–7: What Will This Really Cost?
Item 5 — Initial Fees The franchise fee and other upfront fees.
Item 6 — Other Fees Royalties, marketing, technology, renewal, transfer and other ongoing fees.
Item 7 — Estimated Initial Investment The estimated investment required to open the business.
Erin’s Take: Item 7 deserves your attention, but don’t automatically build your financial plan around the lowest number in the range. Understand what is included, what isn’t and how much working capital you may realistically need.
Items 8–10: Purchasing, Obligations & Financing
Item 8 — Restrictions on Sources of Products and Services Requirements to purchase certain products, equipment or services from approved sources.
Item 9 — Franchisee’s Obligations A cross-reference of your contractual responsibilities.
Item 10 — Financing Information about financing arrangements offered or arranged by the franchisor.
These sections help you understand how much operating flexibility you’ll actually have.
Item 11: Training & Support
Item 11 — Franchisor’s Assistance, Advertising, Computer Systems and Training
This is one I pay close attention to.
Don’t stop at:
“They provide great support.”
Ask:
- How long is training?
- Who provides it?
- What happens after opening?
- What operational support is available?
- What marketing support is provided?
- What technology is required?
“Support” sounds great in a presentation. Your job is to understand what it actually looks like after you become a franchisee.
Items 12–17: How You Can Operate the Business
Item 12 — Territory Your territory and any protections or limitations.
Item 13 — Trademarks Information about the franchisor’s trademarks.
Item 14 — Patents, Copyrights and Proprietary Information Additional intellectual property disclosures.
Item 15 — Obligation to Participate in the Business Requirements regarding the owner’s involvement in operations.
Item 16 — Restrictions on What You May Sell Limits on products and services franchisees may offer.
Item 17 — Renewal, Termination, Transfer and Dispute Resolution What happens if you renew, sell, transfer or terminate the franchise relationship.
Erin’s Take: Item 15 is especially important if you’re interested in semi-absentee ownership. Make sure the ownership model you’re imagining is actually permitted by the franchise system.
Item 18: Public Figures
Item 18 — Public Figures
Disclosures regarding certain public figures associated with the franchise.
Item 19: Financial Performance Representations
Item 19 — Financial Performance Representations
This is understandably one of the sections prospective franchise buyers are most interested in.
If the franchisor provides financial performance representations in the FDD, they’re disclosed here.
But don’t just look at a revenue number.
Ask:
- How many locations are represented?
- Are the numbers averages or medians?
- Are we looking at revenue or profit?
- What expenses are excluded?
- How old are the locations represented?
- How applicable are the results to your market?
Revenue is not profit.
I’ve seen buyers get excited about a top-line number without understanding what sits underneath it. Context matters.
Item 20: Franchisee & Outlet Information
Item 20 — Outlets and Franchisee Information
Look at:
Openings. Closures. Transfers. Turnover.
Then talk to franchisees.
Current and former franchisees can be some of your most valuable sources of information during due diligence.
Don’t just ask, “Do you like the franchise?”
Ask what surprised them, what they wish they’d known, whether support matched expectations and whether they would make the investment again knowing what they know today.
Items 21–23: Financials, Contracts & Receipt
Item 21 — Financial Statements The franchisor’s required financial statements.
Item 22 — Contracts Agreements you may be required to sign.
Item 23 — Receipts Acknowledgment that you received the FDD.
This is where your professional advisors become particularly important.
Have a qualified franchise attorney review the legal documents and a qualified financial professional help you understand financial information you aren’t comfortable evaluating yourself.
Which FDD Items Should Franchise Buyers Pay the Most Attention To?
All 23 items matter, but in my experience, prospective owners often have the most questions around:
- Item 5: Initial Fees
- Item 6: Other Fees
- Item 7: Estimated Initial Investment
- Item 11: Training and Support
- Item 12: Territory
- Item 15: Owner Participation
- Item 17: Renewal, Termination and Transfer
- Item 19: Financial Performance Representations
- Item 20: Franchisee and Outlet Information
Which sections matter most to you will depend on your finances, desired role in the business and long-term goals.
Does an FDD Mean a Franchise Is a Good Investment?
No.
The FDD is required disclosure. It does not mean the government endorses the franchise, guarantee the business will succeed or replace your own due diligence.
A franchise can be a good business and still be the wrong business for you .
That’s why FranPursuit looks beyond the brand itself and considers your finances, skills, goals and desired ownership role.
What Should You Do After Receiving an FDD?
Here’s the process I recommend:
1. Read it. Don’t rely solely on the sales presentation. 2. Write down your questions. Anything you don’t understand deserves clarification. 3. Review the investment. Understand startup costs, ongoing fees and working capital. 4. Talk to franchisees. Speak with current and, when possible, former owners. 5. Review the agreements. Use qualified franchise counsel. 6. Review the numbers. Bring in a CPA or financial professional when appropriate. 7. Compare the opportunity to your goals. Does this business actually
The Biggest Mistake I See
People sometimes fall in love with the concept before doing the research.
Maybe you’re already a customer.
Maybe you love the brand.
Maybe the marketing is fantastic.
I get it.
But remember:
You’re not buying the marketing. You’re buying the business model.
The FDD helps you look underneath the brand. fit the life and financial outcome you’re trying to create?
Questions I Would Ask Before Moving Forward
After reviewing the FDD, ask yourself:
- What surprised me?
- What costs weren’t obvious initially?
- What does the investment range really include?
- What support will I actually receive?
- What are current and former franchisees saying?
- What do openings, closures and transfers tell me?
- Does the territory make sense?
- What will ownership require from me?
- Does the financial model align with my goals?
- What questions still haven’t been answered?
If you still have unanswered questions, keep asking.
Frequently asked questions
What does FDD stand for?
FDD stands for Franchise Disclosure Document.
What is an FDD?
A Franchise Disclosure Document is a legal disclosure document containing 23 required categories of information about a covered franchise offering, including the franchisor, fees, investment, obligations, financial information and franchisee data.
How long do I have to review an FDD?
Prospective franchisees generally must receive the FDD at least 14 calendar days before signing a franchise agreement or paying money to the franchisor or its affiliate.
Should an attorney review my FDD?
Prospective franchise owners should strongly consider having qualified franchise counsel review the FDD and franchise agreement before signing.
Does an FDD tell me whether I should buy a franchise?
No. The FDD provides information to support your due diligence. You still need to determine whether the opportunity fits your finances, goals, desired ownership role and risk tolerance. Erin’s Advice
After more than two decades in franchising, I’ve learned that the strongest franchise buyers aren’t necessarily the people who know the most about a particular brand.
They’re the people who ask the best questions.
The goal isn’t to find a perfect franchise.
It’s to understand an opportunity well enough to make an informed, confident decision about whether it’s the right franchise for you.
If you’re evaluating a franchise and want an experienced guide through the discovery and due-diligence process, learn more about how FranPursuit helps franchise buyers.
And if you’re not even sure whether franchise ownership is right for you yet?
That’s exactly where I recommend starting. ————————
Related reading: How Much Does It Cost to Buy a Franchise? A Guide to Franchise Startup Costs.
Want help reading an FDD?
Bring the document to a conversation. We will walk through what matters, what to question and what to verify with existing franchisees. There is no cost to you at any stage.
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About the author
Erin Pate, CFC is the Founder and CEO of FranPursuit and a franchise operations expert with 25 years of experience in franchising. She has directed 350+ franchise start-ups across the United States. Learn more about Erin →