A franchise disclosure document (FDD) gives a prospective restaurant owner the franchisor's disclosures about opening costs and operating obligations. Its numbered sections cover fees, purchasing restrictions, financial performance information and the terms of the franchise relationship. Reading those sections together makes it easier to compare offers and ask specific questions before committing.
For transactions covered by the Federal Trade Commission's (FTC) Franchise Rule, the franchisor must furnish the current FDD at least 14 calendar days before the prospective franchisee signs a binding agreement with, or pays, the franchisor or an affiliate in connection with the proposed franchise sale. The rule has exemptions. The federal disclosure requirement sets a minimum review period, not a deadline to finish evaluating an offer.
Build the cost picture from Items 5, 6 and 7#
These three items answer different questions under the FDD disclosure requirements:
| FDD item | What it covers | What to record |
|---|---|---|
| Item 5: Initial fees | Fees, payments and commitments to pay for goods or services received from the franchisor or an affiliate before opening | Amount, timing and refund conditions |
| Item 6: Other fees | Other fees paid to the franchisor or affiliates, or imposed or collected by them for third parties | Amount or formula, due date and conditions |
| Item 7: Estimated initial investment | Estimated expenditures to establish the business and additional funds for an identified initial period | Restaurant format, amounts or ranges, payment timing, recipients and explanatory notes |
The initial franchise fee belongs within Item 7's investment table. Check how it is included before adding figures together. Item 6's other fees can include recurring charges and charges triggered by a particular event; record when each applies.
Read the notes to Item 7's additional-funds estimate. What period does it cover, and what assumptions produced it? Use those answers to develop a budget for the proposed restaurant. A disclosed estimate does not establish when that restaurant will break even.
Connect fees with purchasing, support and territory#
Item 8 addresses restrictions on required purchases and disclosures about the franchisor's revenue or benefits from them. Read who can approve a supplier and the conditions for approval. Item 9 is the table of franchisee obligations, with references to the agreement and other FDD items.
For advertising, Item 11 explains the program and required contributions. Questions to carry forward include who administers the fund, how it was used in the most recent fiscal year, whether its financial statements are available and what local spending is required. The same item describes the franchisor's assistance and training commitments.
Then read Item 12's territory provisions. Record the territory granted, conditions on exclusivity and any rights reserved for other outlets or distribution channels. Follow the references into the agreement rather than relying on a map or a sales description alone.
Check which restaurants Item 19's numbers describe#
A franchisor can choose not to make a financial performance representation. In that case, Item 19 still requires a statement saying it does not make one. For a representation included in Item 19, the rule requires a reasonable basis and written substantiation at the time it is made. It also requires a statement that the substantiation is available upon reasonable request.
For historical results, identify the reporting period, the total outlets in that period, any subgroup eligible for the sample and the number actually included. Then check the number and percentage of those included outlets that reached or exceeded the stated result. Check whether the sample consists of franchised or company-operated restaurants, and whether location type, geography or operating history differs from the restaurant you plan to open. For a forecast, examine its stated assumptions.
The FTC's franchise-buying guide explains why gross sales cannot establish profit: expenses still have to be paid. If a figure reports sales, keep it labeled as sales in your comparison. An earnings estimate needs its own supporting expense assumptions.
Use Item 20 to plan franchisee conversations#
Item 20 provides outlet tables covering the last three fiscal years, including state-level changes. Read transfers, terminations, non-renewals, reacquisitions and other departures in their separate categories. The tables give counts; follow-up conversations can help explain the circumstances.
Use the disclosed current and former franchisee contacts to ask about opening costs, training, required purchases and support. The FTC suggests speaking with franchisees at different stages of ownership. Ask how their actual experience compares with the commitments you have recorded. Item 20 also addresses confidentiality provisions, which can limit what some franchisees can discuss. Its contact lists follow defined disclosure rules and should not be treated as a complete history of every former owner.
Read renewal and transfer terms before opening#
Item 17 summarizes renewal, termination, transfer and dispute provisions and points to the applicable contract sections. Item 22 contains the proposed agreements. Use both to answer questions that can matter years after opening:
- What conditions apply to renewal, and could it require a contract with materially different terms?
- Which defaults allow an opportunity to cure, and what does the agreement require within that period?
- What approvals and conditions apply to a sale or transfer, and does the franchisor have a right of first refusal?
- What dispute process, forum and choice-of-law provisions appear in the contract?
Also trace any remodeling or operating-change obligations through Item 9 and the referenced provisions. Record the actual requirements; the item summaries do not settle how a provision applies under relevant law.
Keep a comparison worksheet tied to the documents#
Record each FDD's issuance date and the proposed restaurant format. In each cell below, enter the answer and its page or contract reference; mark unresolved questions for follow-up.
| Question | Brand A | Brand B |
|---|---|---|
| What does Item 7's investment estimate include, and for what initial period? | ||
| Which fees apply, on what basis and when? Items 5 and 6 | ||
| What purchasing, advertising and territory conditions apply? Items 8, 11 and 12 | ||
| What population, period and measure support the performance claim, if any? Item 19 | ||
| What outlet changes and franchisee accounts need explanation? Item 20 | ||
| What renewal, remodeling and transfer obligations apply? Items 9, 17 and 22 |
These questions sit alongside the rest of the FDD: Item 2 covers business experience, Item 3 litigation disclosures, Item 4 bankruptcy disclosures and Item 21 financial statements. Read the whole document and its attachments. The FTC recommends involving an accountant and a lawyer experienced in franchise matters. Give them the FDD, the proposed agreements and the unresolved questions in your worksheet so they can examine the specific offer.
QSR Pro Staff
The QSR Pro editorial team covers the quick service restaurant industry with in-depth analysis, data-driven reporting, and operator-first perspective.
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