Buying a franchise means buying someone else's playbook, brand, and fee schedule, and federal law recognizes the information imbalance. The FTC's Franchise Rule requires every franchisor to give prospective buyers a Franchise Disclosure Document (FDD) — a standardized 23-item dossier — at least 14 calendar days before any binding agreement or payment. The document is long by design: it exists so that the deal's economics can be read before the deal is signed. Orer News publishes information, not legal advice.
The FDD is updated annually and re-issued when material terms change, and the 14-day clock is a floor, not a formality — buying a franchise without reading it is the entrepreneurial equivalent of signing a mortgage by its cover.
What are the 23 items?
They cover, in fixed order: the franchisor's history and litigation record, bankruptcy history, initial and ongoing fees, your estimated initial investment, obligations on both sides, territory, trademarks, financing the franchisor offers, the franchisee community, advertising funds, required suppliers and earnings claims, computer systems, and how renewal, termination, transfer, and dispute resolution work. Most items are disclosures; the ones that decide the economics deserve line-by-line attention.
Which items carry the money?
Item 5 discloses initial fees — the franchise fee itself and who else gets paid up front. Item 6 lists ongoing royalties and their base: percentage of gross sales is the standard, and gross matters, because royalties are paid before your rent, labor, or profit. Item 7 is the estimated initial investment — a ranged table from the franchise fee through build-out, inventory, working capital, and the often-underestimated months of losses before break-even. Item 19 is the financial performance representations: any earnings claim the franchisor makes must appear here with its basis, or it legally was not made. An FDD with an empty Item 19 is telling you the franchisor declined to make claims you can verify — a fact to weigh, not to skip past.
What should you verify outside the document?
The Item 20 list of current and former franchisees is the single most valuable page. Call a sample of both — current operators for unit economics the FDD may not claim, and recent departures for why they left, with awareness that some exits are retirements and some are flameouts. Verify the trademark registrations in Item 13 actually exist, confirm your territory in Item 12 is protected the way you assume, and have a franchise-experienced attorney read the actual franchise agreement against the FDD's summary, because the contract controls and its terms are not standardized.
What are the classic trap patterns?
Watch for required supplier markups that function as hidden royalties; advertising funds you must contribute to but do not control; renewal terms that let the franchisor reprice everything at expiration; broad personal guarantees on the franchise agreement; and item 3 litigation showing franchisors suing departed franchisees at unusual rates. None of these is illegal, and all of them belong in the price you believe you are paying.
| FDD item | What it tells you |
|---|---|
| Item 5 | Initial fees and who collects them |
| Item 6 | Royalties and their base |
| Item 7 | Total estimated initial investment |
| Item 19 | Any earnings claims, with basis |
| Item 20 | Current and departed franchisees |
The Franchise Rule gives you two weeks and a standardized document; the rest of the diligence is yours. Read items 5 through 7 and 19 with a calculator, call the Item 20 list, and let the contract — not the salesperson's summary — define the deal you are buying.
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