FRANCHISE LAW
10 Tips for Buying a Franchise
The most important rule for buying a franchise is simple: do your due diligence before you sign, not after. A franchise gives you a proven system and a recognized brand, but it also locks you into a long contract written to protect the franchisor. These ten tips walk through what to check — from the Franchise Disclosure Document (FDD) to the franchisees who’ve already lived it — so you go in with clear eyes.
1. Read the entire FDD
Every U.S. franchisor must give you a Franchise Disclosure Document under the FTC Franchise Rule. It has 23 standardized sections covering fees, litigation, territory, financials, and the franchise agreement itself. Read all of it. The disclosure is the single best source of unfiltered information about the system, and it’s free. Our guide on reading an FDD shows where to focus.
2. Use the full 14-day window
The franchisor must deliver the FDD at least 14 calendar days before you sign anything or pay any money. Treat that as a floor, not a target. There’s no federal right to cancel a franchise purchase after you sign, so the review has to happen up front. Take weeks, not days, if you need them.
3. Size the real cost from Item 7
Item 7 of the FDD gives a low-to-high range for your total initial investment — franchise fee, build-out, equipment, opening inventory, and the cash to survive the early months. Plan against the high end. Then add the ongoing royalty and advertising fees from Items 5 and 6 to understand your true cost of operating. See our breakdown of franchise fees.
4. Check Item 19 for earnings claims
Item 19 is the only place a franchisor can legally make financial performance representations. Disclosing earnings is voluntary — many franchisors don’t — but if a salesperson quotes you revenue or profit figures, they must appear in Item 19 with a reasonable basis behind them. If the numbers you heard aren’t in the document, get them in writing or treat them as marketing. More on whether franchises must share financials.
5. Call the franchisees in Item 20
Item 20 lists current franchisees and those who recently left, with contact information. This is your most valuable research tool. Call a range of them — successful, struggling, and departed — and ask about actual revenue, real costs, franchisor support, and whether they’d do it again. The owners who left often tell you the most.
6. Scrutinize the territory
Confirm exactly what territory you’re getting and whether it’s protected. Many agreements that sound exclusive let the franchisor sell through online ordering, grocery, or other channels inside your area, or open new units once you hit revenue thresholds. Read the carve-outs. Our franchise territory assessment checklist covers how to evaluate an area.
7. Review the franchise agreement clause by clause
The agreement attached to the FDD is the binding contract, and its renewal, transfer, non-compete, and termination clauses decide what happens when you want to sell or exit. These are drafted in the franchisor’s favor. Understand each one before you commit. Start with the most common franchise agreement mistakes.
8. Read the litigation and bankruptcy items
Items 3 and 4 disclose the franchisor’s litigation and bankruptcy history. A pattern of lawsuits between the franchisor and its own franchisees is a meaningful warning sign — it can signal disputes over fees, territory, or support. Don’t skip these because they’re dry; they’re often where the real story is.
9. Build your own financial model
Don’t rely on the franchisor’s framing. Using Item 7 costs, any Item 19 figures, and the revenue ranges you gather from franchisee calls, build a conservative model of your own break-even and cash needs. Have an accountant who knows franchising pressure-test it. The goal is to know your downside before you risk capital.
10. Bring in a franchise lawyer before you sign
A franchise attorney reviews the FDD and agreement, flags the clauses that will cost you later, and tells you which terms are worth negotiating. Doing this before signing — while you still have leverage and the 14-day window is open — is far cheaper than untangling a bad deal afterward.
A quick due-diligence summary
| Step | Source | What you’re confirming |
|---|---|---|
| Total cost | FDD Item 7 | Realistic money to open and operate |
| Earnings claims | FDD Item 19 | Any financial representation, in writing |
| Franchisee experience | FDD Item 20 | Actual results from real owners |
| Territory | Franchise agreement + Item 12 | What’s protected and what isn’t |
| Contract risk | Franchise agreement | Renewal, transfer, non-compete, termination |
Frequently asked questions
How much money do I need to buy a franchise? It depends entirely on the brand and industry. FDD Item 7 gives the franchisor’s estimated initial investment range. Plan against the high end and keep a cash reserve for the early operating months.
Can I get out of a franchise if it doesn’t work out? Not easily. There’s no federal cooling-off period for franchise purchases, and the agreement’s termination and transfer clauses control your exit. That’s why the review happens before you sign.
Do I have to pay for an FDD? No. The franchisor is required to provide it for free as part of the sales process under the FTC Franchise Rule.
Is buying an existing franchise (a resale) different? Yes. A resale adds the existing unit’s books, lease, and equipment condition to your due diligence, and the franchisor still must approve the transfer and may require you to sign its current agreement.
Considering a franchise purchase? Reidel Law Firm reviews Franchise Disclosure Documents on a flat fee, with a plain-English summary and direct attorney access. Get a flat-fee FDD review →
