What are all 23 items in an FDD?

The 23 items in a Franchise Disclosure Document (FDD) cover: (1) Franchisor background, (2) Business experience of key people, (3) Litigation history, (4) Bankruptcy history, (5) Initial franchise fee, (6) Other fees, (7) Estimated initial investment, (8) Restrictions on sources of products, (9) Franchisee obligations, (10) Financing, (11) Franchisor assistance and training, (12) Territory rights, (13) Trademarks, (14) Patents and copyrights, (15) Obligation to participate, (16) Restrictions on sales, (17) Renewal, termination, and transfer terms, (18) Public figures, (19) Financial performance representations, (20) Franchisee outlet information, (21) Financial statements, (22) Contracts, and (23) Receipts.

How long does it take to properly review an FDD?

A thorough FDD review typically takes 20–40 hours spread over 2–4 weeks. The most time-intensive items are Item 7 (building your investment model), Item 19 (analyzing financial performance data), Item 20 (calculating turnover rates and speaking with franchisees), and Items 9/17 (understanding your obligations and exit terms). Most first-time buyers significantly underestimate the time required for proper due diligence.

Which FDD items are most important?

The highest-priority FDD items for investment decisions are: Item 19 (financial performance — does the unit make money?), Item 20 (franchisee turnover — are existing owners happy and profitable?), Item 21 (franchisor financials — is the company solvent?), Item 3 (litigation — are franchisees suing?), Item 12 (territory — is your market protected?), and Item 17 (exit terms — can you sell or exit if needed?). Items 7 and 6 are critical for financial modeling.

Do I need a lawyer to review an FDD?

Yes. You should engage a qualified franchise attorney to review the FDD and franchise agreement before signing. Focus your personal review on the business economics (Items 6, 7, 19, 20, 21) and the strategic terms (Items 12, 17). Your attorney should focus on legal obligations, termination rights, dispute resolution, and contractual protections. Franchise attorneys typically charge $1,500–$5,000 for a full review. It's the best investment you can make.

What is the FDD waiting period?

The FTC requires franchisors to give you the FDD at least 14 calendar days before you sign any franchise agreement or pay any money. This is a mandatory cooling-off period. Use every one of those 14 days. Many states (like California, New York, and Maryland) have additional disclosure requirements and waiting periods. Never let a franchisor pressure you to sign before the waiting period expires.

Due DiligenceFree Tool

FDD Due Diligence Checklist

Work through all 23 FDD items systematically. Check off tasks, flag red flags, and track your readiness score before signing any franchise agreement.

of 93 tasks done

overall progress

red flags raised

readiness score

📋Early Stage— Critical items: 0/42

Due diligence is just beginning. Work through each FDD item systematically.

Overall progress0/93

Confirm how long the franchisor has been operating (5+ years preferred)

Less than 5 years = unproven model.

Identify all parent companies and affiliates with business relationships

Hidden affiliates can create undisclosed fee obligations.

Note predecessor companies — look for rebrands after failure

A predecessor bankruptcy is a serious signal.

Confirm the principal business address and state of incorporation

Watch for: Young franchisors (<3 years), frequent rebranding, or predecessor bankruptcies.

Review 5-year employment history for all listed executives

Assess whether leadership has direct franchise operating experience

Operators make better franchisors than pure financial executives.

Check for high management turnover across recent FDD versions

Compare current FDD to prior year's — same leadership?

Google each executive for news, lawsuits, or prior franchise failures

Watch for: Leadership with no franchise operations experience, or pattern of executive departures.

Count total pending and settled lawsuits in the last 10 years

3+ active lawsuits is a yellow flag; 5+ is a red flag.

Identify whether lawsuits were initiated by franchisees vs. third parties

Franchisee-initiated suits signal systemic problems.

Look for patterns: repeated claims of misrepresentation or earnings fraud

Check state franchise registration filings for additional disclosures

Search PACER or CourtListener for any undisclosed federal litigation

Watch for: Multiple franchisee suits, claims of misrepresentation, or active class actions.

Confirm no bankruptcy filings by franchisor in the past 10 years

Check whether any affiliates or predecessors filed bankruptcy

If bankruptcy found, review the nature and resolution

Chapter 11 reorganization differs from Chapter 7 liquidation.

Watch for: Any bankruptcy by the franchisor, its principals, or predecessors in the last decade.

Record the initial franchise fee (IFF) amount

Over $50K is high relative to industry norms for most concepts.

Confirm whether IFF is refundable under any circumstances

Compare IFF to competitors in the same sector

Ask what specific value or services the IFF covers

Watch for: IFF > $50K with no clear value delivered, or non-refundable with no substantive onboarding.

List all ongoing fees: royalties, marketing fund, tech fees, training fees

Add these up — total fees often exceed 10-12% of gross revenue.

Confirm royalty rate and whether it is % of gross, net, or flat

% of gross revenue is most common. Flat fees can hurt at low revenue.

Check if marketing fund has audited financials (franchisor transparency)

Note any transfer fees, renewal fees, or exit penalties

Watch for: Total fees >12% of gross, unaudited marketing fund, or hidden transfer/exit costs.

Build a full investment model using the low and high ranges

Always model the high end — budgets almost always run over.

Confirm working capital estimate is sufficient (3-6 months preferred)

Call 5 existing franchisees and ask what they actually spent

Actual costs often exceed Item 7 estimates by 15-30%.

Factor in personal living expenses through your break-even timeline

Confirm total investment fits within 50-70% of liquid capital (leave cushion)

Watch for: Working capital <3 months, real franchisee costs exceed Item 7 high estimate, or investment requires >80% of liquid assets.

Identify all mandatory approved suppliers for key inputs

Ask franchisees whether supplier prices are competitive with open market

Check whether franchisor or affiliates receive supplier rebates or kickbacks

Disclosed rebates going to the franchisor reduce your margin.

Calculate estimated gross margin impact of required supplier markups

Watch for: Captive suppliers with no price benchmarks, undisclosed affiliate supplier relationships.

Review the full obligations table — note any unusual operational mandates

Identify staffing minimums and owner-operator requirements

Check whether you must purchase a minimum inventory or volume

Note technology system obligations and associated upgrade costs

Watch for: Obligations that restrict your operating flexibility without clear economic rationale.

Check if franchisor offers in-house financing or equipment leasing

Review terms of any franchisor-provided financing (rates, security interests)

Check if franchise is SBA-eligible (listed in SBA Franchise Directory)

Confirm no security interest in your business assets from the franchisor

Watch for: Franchisor financing with punitive terms or security interests that could accelerate on default.

Review initial training program: length, location, curriculum

Confirm ongoing field support: visits, hotlines, dedicated support rep

Ask franchisees about support quality — does corporate follow through?

Item 11 tells you what's promised. Franchisees tell you what's delivered.

Review technology systems: POS, CRM, inventory. Are they proprietary?

Watch for: Thin training program, no dedicated field support, or outdated proprietary systems.

Confirm whether territory is exclusive or protected

Non-exclusive territory means encroachment is possible.

Define how territory boundaries are drawn (zip code, radius, county)

Check for carve-outs: e-commerce, ghost kitchens, alternative channels

Confirm conditions under which franchisor can reduce or modify territory

Map existing units relative to your proposed territory — saturation risk?

Watch for: Non-exclusive territory, broad carve-outs for online/alternative channels, or nearby unit density.

Confirm trademark is federally registered with the USPTO (not just state)

Check trademark registration date and renewal status

Look for pending trademark disputes or cancellation proceedings

Confirm what happens to your license if the trademark is challenged

Watch for: Unregistered or state-only trademarks, active challenges, or unclear license continuation terms.

Review any patents or trade secrets that underpin the business model

Confirm duration of any relevant patents (expiring IP = eroding moat)

Check your obligations around confidential information and non-competes

Watch for: Near-expiring patents that form the core of the value proposition.

Confirm whether owner-operator participation is required (vs. passive ownership)

If passive ownership is allowed, review manager qualification requirements

Check restrictions on owning competing businesses

Watch for: Mandatory owner-operator requirement if you plan semi-absentee; or conflict with existing businesses.

Review product/service restrictions — can you add revenue streams?

Check whether you can sell approved products through third-party platforms

Note any restrictions on catering, delivery, or non-traditional formats

Watch for: Broad restrictions that prevent diversifying revenue or adapting to local demand.

Record initial term length and renewal terms/conditions

Review termination triggers — are any non-cure (immediate termination) provisions unreasonable?

Look for 'immediate termination' clauses beyond fraud/criminal acts.

Check transfer rights and fees — can you sell the business to a buyer?

Note post-term non-compete geography and duration

Identify dispute resolution method (arbitration vs. court, location, governing law)

Watch for: Short initial term (<5 years), punitive termination triggers, right of first refusal on transfer, or mandatory arbitration in distant state.

Note any celebrity or public figure endorsements

Assess whether brand value is tied to a single individual's reputation

Check compensation arrangements with public figures

Watch for: Brand heavily dependent on one individual who could exit or face reputational damage.

Confirm whether Item 19 is included (missing = major yellow/red flag)

Record median and average gross revenue for system units

Calculate what % of franchisees meet or exceed the averages shown

Median > mean means most franchisees do better than average — a good sign.

Extract EBITDA or net income data if provided (not just revenue)

Validate Item 19 data by asking franchisees for their actual P&Ls

Watch for: Missing Item 19, top-line revenue only (no profitability data), or wide spread between top and median performers.

Calculate annual turnover rate: (terminations + non-renewals + transfers) ÷ total units

Under 5% = healthy. Over 10% = investigate. Over 15% = red flag.

Compare unit counts across 3 years of FDD filings — is the system growing?

Identify the ratio of company-owned to franchised units

Contact at least 10 franchisees — use Item 20 list, not franchisor referrals

Call recently exited franchisees — they'll tell you the unfiltered truth.

Ask each franchisee: 'Knowing what you know now, would you buy again?'

Watch for: Turnover >10%, shrinking unit count, or franchisees unwilling to talk.

Confirm financial statements are audited by a third-party CPA firm

Review 3 years of income statements — is the franchisor profitable?

Check the balance sheet: debt load, cash reserves, working capital

Look for 'going concern' audit qualifications — this is a serious red flag

Calculate what % of franchisor revenue comes from royalties vs. new unit fees

High dependency on new unit fees (>40%) means they need to keep selling franchises to survive.

Watch for: Going concern qualification, franchisor losing money, or >40% revenue from new unit fees.

Obtain and review the actual franchise agreement (not just the FDD summary)

Have a franchise attorney red-line the franchise agreement

Review any area development agreements, leases, or addenda

Identify any provisions that differ from oral representations you've received

Watch for: Contracts that contradict or expand beyond what was discussed, or refusal to negotiate any terms.

Sign and date both receipt pages (required by FTC)

Note the exact date you received the FDD — 14-day clock starts here

Keep a copy of the signed receipt for your records

Watch for: Any pressure from franchisor to sign before the 14-day waiting period expires.

Your Due Diligence Summary

0/93

Total tasks completed

Red flags raised

Readiness score

📋Early Stage

Due diligence is just beginning. Work through each FDD item systematically.

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FDD Review Guide

How to use this checklist

Work through each FDD item in order. Check off tasks as you complete them. Use the red flag button when you find something concerning — this adds it to your summary and helps you track issues to resolve before signing.

Prioritize critical items first

Critical items — 3, 4, 6, 7, 12, 17, 19, 20, 21 — carry the most weight in your readiness score. These cover litigation, investment, territory protection, exit rights, and unit economics. Clear these before the rest.

Talk to franchisees

Item 20 provides a list of every current and recently departed franchisee. Use it. Call at least 10 people, and specifically target those who left the system. They'll tell you things the FDD never will.

Hire a franchise attorney

This checklist is a framework for your business analysis. It is not a substitute for legal review. A qualified franchise attorney ($1,500–$5,000) is the single best investment you can make before signing. Use one.

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Upload your FDD and get an automated analysis of all 23 items: red flag detection, unit economics modeling, and side-by-side franchise comparison.

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