Under the US Federal Trade Commission's Franchise Rule (16 CFR Part 436), a franchisor must give you its Franchise Disclosure Document at least 14 calendar days before you sign a binding agreement or pay any money. The format is standardised into 23 numbered items, so once you know the structure you can compare brands quickly. Several states — including California, New York, Illinois, Maryland, Minnesota, Virginia, Washington and Wisconsin — also require franchisors to register their FDD before selling there, which gives you a second public source for older versions.
Items 1–4: who you are dealing with
Item 1 — The franchisor, parents, predecessors and affiliates. Who the legal entity is, how long it has offered franchises, and any parent company. Note whether the entity you contract with has its own assets or is a thin subsidiary.
Item 2 — Business experience. Five-year employment history of directors and key officers. Look for real operating experience in this industry, and frequent leadership turnover.
Item 3 — Litigation. Material lawsuits involving the franchisor and its management, including those brought by franchisees. One or two disputes in a large system is normal. A pattern of franchisees suing over the same issue — misrepresentation, encroachment, supply pricing — is a warning.
Item 4 — Bankruptcy. Bankruptcies of the franchisor, affiliates and officers in the last ten years.
Items 5–7: what it costs
Item 5 — Initial fees. The franchise fee and any other payments before opening, whether they are refundable, and any discounts (for veterans or multi-unit buyers, for example).
Item 6 — Other fees. Every recurring and situational fee: royalties, ad fund contributions, technology fees, training fees for new managers, transfer fees, renewal fees, audit costs and late charges. Add them up with our royalty cost calculator.
Item 7 — Estimated initial investment. A table of everything needed to open and operate for an initial period, with low and high estimates. Plan around the high column, and check how many months of working capital the "additional funds" line assumes. Three months is often too thin.
Items 8–16: how the relationship works
Item 8 — Restrictions on sources of products and services. What you must buy from the franchisor or approved suppliers, and whether the franchisor earns rebates or revenue from those purchases. Required-supplier markups can quietly erode margins.
Item 9 — Franchisee's obligations. A cross-reference table to your duties in the agreement.
Item 10 — Financing. Any financing the franchisor or its affiliates offer, with terms.
Item 11 — Franchisor's assistance, advertising, computer systems and training. What the franchisor must do before and after opening, the typical time from signing to opening, the ad fund's governance, required technology and the training program. Compare promises made in sales calls with what this item obliges them to do.
Item 12 — Territory. Whether you get an exclusive or protected territory, how it is defined, and whether the franchisor can sell online, through other channels or open company units nearby. This is one of the most negotiated items.
Item 13 — Trademarks. Whether the principal marks are federally registered. Unregistered marks are a risk if a prior user exists in your market.
Item 14 — Patents, copyrights and proprietary information. The intellectual property you may use and the confidentiality rules attached.
Item 15 — Obligation to participate in the operation. Whether you must run the business personally or may hire a manager — critical if you want a semi-absentee model.
Item 16 — Restrictions on what you may sell. Limits on products, services and customers.
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Get my match reportItem 17: the exit doors
Item 17 — Renewal, termination, transfer and dispute resolution. A table summarising the term, renewal conditions, what counts as default, cure periods, transfer conditions, post-termination non-compete clauses, and where disputes are resolved. Read it slowly. Your ability to sell the business and get value for what you built depends on the transfer and renewal terms.
Item 18 — Public figures. Any celebrity compensation or involvement used to promote the franchise.
Item 19: what units earn
Item 19 — Financial performance representations. Franchisors are not required to make earnings claims, but if they make any — even verbally — they must appear here with the basis and assumptions. When an Item 19 exists, check:
- Which units are included: all, franchised only, or only units open more than a year?
- Whether it shows the median as well as the average. A few top performers inflate averages.
- Whether it reports revenue only, or costs and profit too.
- How many units hit or beat the stated figure.
If there is no Item 19, a salesperson should not give you earnings figures. If they do, treat it as a red flag and write it down.
Item 20: the health of the network
Item 20 — Outlets and franchisee information. Three years of data on openings, transfers, terminations, non-renewals, reacquisitions and units that ceased operations, by state. Plus contact information for current franchisees and those who left in the last fiscal year. Calculate a simple turnover rate: (transfers + terminations + non-renewals + ceased operations) ÷ units at the start of the year. A high or rising rate deserves explanation, and the departed franchisees are your most candid validation calls.
Items 21–23: the paperwork
Item 21 — Financial statements. Audited financial statements for the franchisor, usually three years. Look for positive equity, cash to support its obligations, and how much revenue comes from selling new franchises versus royalties. A franchisor that depends on new franchise fees to survive has incentives that may not align with yours.
Item 22 — Contracts. Copies of every agreement you will sign: franchise agreement, personal guarantee, lease rider, software licence, development agreement.
Item 23 — Receipts. Two receipt pages; signing one starts the 14-day clock. Signing the receipt does not commit you to buy.
Where to find older FDDs
Several state regulators publish registered FDDs online, including California's Department of Financial Protection and Innovation, Wisconsin's Department of Financial Institutions and Minnesota's Department of Commerce. Comparing the last three years of a brand's FDD shows how fees, Item 19 and closures have changed. Links are on our resources page.