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Understanding the Franchise Disclosure Document (FDD)

Filed in Franchise 101 — January 5, 2026

What It Includes, What to Watch for, and What to Focus On

Buying a franchise isn’t about picking a logo or a brand name (yes, I sound like a broken record) — it’s about understanding risk, responsibility, and fit. The most important document in that process is the Franchise Disclosure Document (FDD).

Yet many buyers:

  • Don’t know what the FDD actually contains
  • Focus on the wrong sections
  • Get overwhelmed!

Let’s break this down clearly and practically.

What Is the Franchise Disclosure Document (FDD)?

The FDD is a legally required disclosure document regulated by the Federal Trade Commission. Its purpose is not to sell you a franchise — it is to disclose risks, obligations, and realities before you sign anything.  When speaking with a franchisor, they must disclose you of this document and there is a mandatory (review) period before you can sign any franchise agreement.  The 14-day rule:  once the franchisor delivers the FDD, typically through DocuSign, the clock starts.  You CANNOT sign the franchise agreement, sign any binding agreements or pay a deposit or initial fee until that time has passed.  Also there is the the 7-day rule: once you receive the final franchise agreement (written for YOU) after the FDD was delivered, you must have at least 7 calendar days to review the final version before signing.  

Who enforces this, you ask?  The Federal Trade Commission.

Every franchisor must present the FDD in the same format, consisting of 23 required sections (“Items”).

The FDD Sections That Matter Most (and Why)

While all 23 items matter, not all deserve equal attention. Here’s how to read the FDD like an informed buyer — not a hopeful one.

1. Who You’re Partnering With (Items 1–4)

These sections explain:

  • The franchisor’s history and structure
  • Leadership experience
  • Litigation history
  • Bankruptcy disclosures

What to look for:
Patterns, not perfection. One lawsuit isn’t alarming — repeated disputes, leadership turnover, or unresolved litigation can be.

2. Your True Financial Commitment (Items 5–7)

This is where many buyers underestimate risk.

  • Item 5: Initial franchise fees
  • Item 6: Ongoing royalties, marketing fees, technology fees
  • Item 7: Estimated total investment range

What to look for:

  • Is working capital realistic for your lifestyle and household needs?
  • What assumptions drive the low vs. high investment range?
  • Are vendors required — and who controls pricing?

Item 7 is not a guarantee. It’s a starting estimate, not your final cost. Remember the Item 7 is not going to include your first year salary (if you want to pay yourself while starting), manager salary (if you want to start this with leadership in place), etc. These numbers will get your business open, serving customers and some operational capital in the bank.

3. Control, Territory, and Competition (Items 8–12)

These sections define how much autonomy you truly have.

  • Territory protection (or lack of it)
  • Supplier requirements and rebates
  • Franchisor support and training
  • Whether the franchisor can compete with you directly

What to look for:

  • Vague territory language
  • E-commerce or national accounts selling into your area
  • Heavy control without corresponding support

4. Lifestyle Expectations and Exit Strategy (Items 15–17)

These items are often skipped — and later regretted.

  • Owner participation requirements
  • Renewal terms
  • Transfer and resale restrictions
  • Non-compete clauses

What to look for:
 If you can’t clearly explain how you exit, you’re not ready to enter.

5. Performance and System Health (Items 19 & 20)

These two sections should always be reviewed together.

  • Item 19: Financial Performance Representations (earnings claims — optional)
  • Item 20: Number of franchise openings, closures, and transfers

What to look for:

  • Are top performers the only ones represented?
  • Are closures increasing year over year?
  • Do validation calls support what’s shown on paper?

Context matters more than averages. All of these numbers need to be validated during the next phase of exploration: VALIDATION. Oh – and more on The ITEM 19

What Buyers Should Focus on Most

If you’re short on time, prioritize:

  1. Item 7 — Capital and cash runway
  2. Item 11 — Ongoing support after launch
  3. Item 12 — Territory and competition
  4. Item 17 — Exit and transfer rights
  5. Item 19 — Earnings logic
  6. Item 20 — Franchisee turnover and system health

Check out more Franchise Disclosure Document Blogs: 

Should I get an Attorney to Review the FDD?

What does “Going Dark” mean?

This is A LOT of information to tackle on your own – when you are ready for a full tour guide on this process (for free) – let’s schedule time: Calendar