FRANCHISE LAW
FDD Review Checklist: What to Check Before You Sign
The Franchise Disclosure Document is the single most important document you will read before buying a franchise, and the FTC Franchise Rule requires the franchisor to give it to you at least 14 days before you sign anything or pay any money. Use that window. The FDD has 23 standardized items, and a disciplined read of each one tells you who you’re dealing with, what it really costs, whether the franchisor is being sued, and how its existing franchisees are actually doing. This checklist walks all 23 items and flags what to scrutinize in each.
Read the checklist alongside our overview of what the FDD must contain — that explains each disclosure; this page is how to scrutinize it before you sign.
The High-Stakes Items Read These First
A handful of items carry most of the risk. Start here:
- Item 3 — Litigation. A pattern of lawsuits by franchisees against the franchisor is the single biggest red flag in the document. One or two cases over many years is normal; a cluster of franchisee suits alleging the same problem is not.
- Item 19 — Financial Performance Representations. This is the only place a franchisor may make earnings claims — and it is optional. If Item 19 is blank, the franchisor is telling you nothing about what units earn, and any verbal income promise from a salesperson is improper. If Item 19 is present, read the fine print: averages, the share of units that hit them, and whether the figures are gross sales or actual profit.
- Items 5, 6 & 7 — The money. Item 5 (initial fee), Item 6 (royalties and all ongoing fees), and Item 7 (total estimated investment, including working capital) together tell you the real cost to open and operate. Confirm Item 7 includes realistic additional funds for the early months.
- Item 20 — Outlets and franchisee turnover. The tables of openings, closures, transfers, and terminations — plus the contact list of current and former franchisees — are the most candid data in the FDD. High closure or turnover numbers tell a story the marketing won’t.
- Item 21 — Financial statements. The franchisor’s audited financials. A thin or deteriorating balance sheet means support may be at risk and may trigger fee escrow in registration states.
The Full 23-Item Map
| Items | Cover | What to check |
|---|---|---|
| 1–4 | Franchisor identity, business experience, litigation, bankruptcy | Track record; litigation pattern (Item 3); any bankruptcy history |
| 5–7 | Initial fee, ongoing fees, total investment | Full cost to open and operate; working capital realism |
| 8–9 | Restrictions on sources; franchisee obligations | Required suppliers and any franchisor rebates; the duties you’re taking on |
| 10–11 | Financing; franchisor assistance, advertising, training, systems | What support is actually promised vs aspirational |
| 12 | Territory | Exclusivity, or the franchisor’s right to compete near you, including online |
| 13–14 | Trademarks; patents and copyrights | Whether the marks are federally registered and free of disputes |
| 15–17 | Your obligation to operate; restrictions on what you sell; renewal, termination, transfer, dispute resolution | Non-competes, transfer rights, how the relationship ends |
| 18 | Public figures | Whether any endorser is paid or invested |
| 19 | Financial performance representations | Earnings claims, if any — see above |
| 20 | Outlets and franchisee information | Turnover, closures, and the franchisee contact list |
| 21 | Financial statements | Audited financial health |
| 22–23 | Contracts; receipts | The actual agreements you’ll sign; the dated receipt that starts the 14-day clock |
The Steps the Checklist Can’t Skip
Reading the items is half the job. The other half:
- Call current and former franchisees. The Item 20 list exists for this. Ask former franchisees why they left — that conversation is often more revealing than the entire document.
- Mind the clock. The 14-day period runs from the day you receive the FDD; you also must receive the final, fill-in-the-blank agreements at least 7 days before signing. If the franchisor changes a material term, a new period can apply.
- Watch for verbal promises that aren’t in the document. If it matters, it must be in the FDD or the agreement. Earnings claims outside Item 19 are not permitted.
- Check the state cover pages. In a registration state, the FDD carries state-specific cover sheets; their absence where required is a compliance problem.
Frequently Asked Questions
How many items are in an FDD?
Twenty-three. Items 1–23 are standardized by the FTC Franchise Rule so that every franchisor’s disclosure follows the same structure, making systems easier to compare.
What is the most important item in the FDD?
There isn’t a single one, but Item 3 (litigation), Item 19 (financial performance representations), and Item 20 (outlet turnover and the franchisee contact list) carry the most decision-weight, alongside the cost items (5–7) and the franchisor’s financial statements (Item 21).
How long do I have to review the FDD?
At least 14 calendar days before you sign any agreement or pay any money, under the FTC Franchise Rule. You must also receive the completed agreements you’ll sign at least 7 days in advance. Take the full period.
What if Item 19 is blank?
A blank Item 19 means the franchisor makes no financial performance representation, and you cannot rely on any income figure a salesperson gives you verbally. You’ll have to build your own projections from franchisee interviews and Item 7 costs.
A careful FDD review is the difference between an informed decision and an expensive surprise. Reidel Law Firm reviews Franchise Disclosure Documents on a flat fee, with a plain-English summary of the red flags and direct attorney access. Get a flat-fee FDD review before your 14-day clock runs out.
