How to Evaluate an FDD in 90 Minutes

Every franchisor is required to give you the FDD at least 14 calendar days before you sign anything. Most candidates open it, see 200 pages, and procrastinate. That's a mistake — the document is structured so you can extract 80% of the signal in under two hours if you read it in the right order.

1. Item 7 — Estimated Initial Investment

Start here, not at the front. Item 7 is the table that lists every cost from franchise fee through the first three months of operating capital. Add up the high column and add 15% — that's a realistic worst-case build cost. If that number is more than 4x your liquid capital, the brand isn't a fit and you can stop reading.

2. Item 19 — Financial Performance Representations

Brands aren't required to publish earnings claims, but the strong ones do. If Item 19 is missing entirely, that's a yellow flag — ask why. If it's present, look for: how many units are in the sample, what percentile is being shown (median vs top quartile), and how long those units have been open. A median 'open at least 24 months' average unit volume is the most useful figure.

3. Item 20 — Outlets and Franchisee Information

This is the validation goldmine. It lists every current franchisee plus everyone who left in the last three years. Net unit growth tells you the brand's true momentum. The transferred / closed / terminated columns tell you the failure rate — if more than 5% of units left in the last year and the brand isn't growing, walk away.

• Call 8–10 franchisees from the list, not the ones the franchisor refers you to
• Ask: would you do it again? what surprised you? what's your unit-level EBITDA?
• Ask both top performers AND middle-of-the-pack — the average tells you more than the stars

4. Items 5, 6, and 8 — Fees and Restrictions

Item 5 is your initial franchise fee. Item 6 is everything you'll pay ongoing — royalty, ad fund, tech fee, training fees. Total ongoing fees over 8% of gross sales is on the high side; over 12% you need premium unit economics to justify it. Item 8 lists required suppliers and any rebates the franchisor takes — pay attention here, because it directly affects your COGS.

5. Items 12 and 17 — Territory and Renewal

Item 12 defines your protected territory — read it carefully. Some 'protected' territories let the franchisor open corporate locations or sell competing concepts in your area. Item 17 covers renewal, transfer, and termination — make sure renewal isn't conditional on signing whatever the new agreement looks like in 10 years.

Once those five items pass — bring in the lawyer

If the brand survives this 90-minute screen, hire a franchise attorney to review the full agreement. Spending $1,500 on legal review before signing a 10-year, six-figure commitment is the cheapest insurance you'll ever buy.