How to read an FDD for a food franchise

FDD basics: structure and timing

• 23 Items in a fixed order. The FTC Franchise Rule (16 CFR 436.5) sets the order and content of each Item, so the same topic is in the same place in every FDD.
• 14 calendar days. A franchisor must give you its current FDD at least 14 calendar days before you sign a binding agreement or pay the franchisor or an affiliate.
• Annual updates. The FDD must be revised within 120 days after the franchisor's fiscal year ends, with quarterly revisions for material changes. Check the issuance date on the cover.
• Not government-verified. The cover page must state that no governmental agency has verified the information. It also states the total investment from Item 7 and the amount paid to the franchisor from Item 5.

Item 5: Initial fees

Item 5 lists fees paid to the franchisor or its affiliates before you open, and whether any part is refundable. If fees are not uniform, it gives the range or formula used in the last fiscal year.

Look for: what the initial fee covers (training, opening support, initial equipment), refund conditions, and whether pricing depends on territory size. Some franchisors price territories by population, and some collect a deposit at the application or site-selection stage. Ask whether a deposit is refundable if no site is approved.

Item 6: Other fees

Item 6 is a table of every other fee you pay to the franchisor or its affiliates, or that they collect for a third party: royalties, advertising funds, technology, additional training, transfers, renewals, audits, and more. It shows amount, due date, and remarks.

Look for: the royalty basis (percentage of gross sales, or a flat monthly amount; our comparison data includes both), how "gross sales" is defined, and which fees can increase. If a fee can go up, the rule requires the formula or maximum increase to be disclosed. Add up all recurring fees as a monthly cash figure.

Item 7: Estimated initial investment

Item 7 is a low-to-high table of startup costs: initial fee, training expenses, real estate, equipment, fixtures, build-out, opening inventory, deposits and licenses, and an "additional funds" line covering an initial operating period of at least three months (or another reasonable period for the industry). Franchisors may include separate tables for different sites or formats.

Look for: which format each table covers (storefront, kiosk, trailer, truck), whether a vehicle or trailer is included, what the additional-funds period is and how it was estimated, and what is left out. Get local quotes for rent, build-out, and permits instead of relying only on the range. See our cost guide.

Item 11: Assistance, advertising, systems, and training

Item 11 begins with the required statement that, except as listed, the franchisor is not required to provide any assistance. It then covers pre-opening help (site selection, build-out, equipment), the typical time from signing to opening, ongoing support, the advertising program and fund, required point-of-sale and computer systems and their costs, the operations manual, and a training table with hours and locations.

Look for: the opening timeline, who pays training travel, how ad-fund money was spent last year (including any share used to sell new franchises), and required technology costs. For mobile units, ask how event booking and online ordering tools are provided.

Item 12: Territory

Item 12 says whether the franchise is for a specific location or one to be approved, any minimum territory (radius, population, or other), whether the territory is exclusive, and what can change it. If there is no exclusive territory, the FDD must say so in required language. It also covers the franchisor's rights to sell through the internet or other channels inside your area.

Look for: how the territory is measured, conditions for keeping exclusivity, and how events and catering are handled for mobile formats. Our territory guide covers this in depth.

Item 19: Financial performance representations

Item 19 is optional. If a franchisor makes claims about sales, income, or profits, it must have a reasonable basis and written substantiation, and put the claim in Item 19. If it makes none, Item 19 must say so.

Look for: which outlets are included (all, or a subset such as top performers or company-owned units), the time period, how many outlets met or beat the figures, and whether numbers are gross sales or profit. The FTC notes that gross sales alone do not show costs or profit. You can request the written substantiation.

Item 20: Outlets and franchisee information

Item 20 has tables covering three fiscal years: outlet counts, transfers, and franchised outlets opened, terminated, not renewed, reacquired, or closed, by state. It lists current franchisees and those who left in the last fiscal year, with contact information, and discloses whether franchisees signed confidentiality clauses.

Look for: closures and transfers relative to system size, signed-but-not-opened agreements, and patterns in your state. Call current and former franchisees, not only references the franchisor chooses.

Item 21: Financial statements

Item 21 contains the franchisor's financial statements, generally audited: balance sheets for two fiscal years and statements of operations, equity, and cash flows for three. Start-up franchisors may phase in audited statements.

Look for: whether statements are audited, whether revenue depends more on selling new franchises than on royalties, and whether the franchisor has the resources to support its franchisees. An accountant can walk you through it.

Other Items worth a close read

Item 3 (litigation) and Item 4 (bankruptcy) show legal and financial history. Item 8 lists required suppliers and whether the franchisor earns revenue from your purchases. Item 17 covers renewal, termination, transfer, and dispute resolution. Item 22 attaches the contracts you would sign. The contract governs, so read it alongside the summaries.

Where to find FDDs

The FDD you rely on should be the current one the franchisor delivers to you. The FTC notes that you may ask for a copy once the franchisor has received your application and agreed to consider it. Some state regulators also offer public searches of registered franchises:

• California: the DFPI Franchises page links to a franchise search on the DFPI website. Per DFPI, copies of franchise applications can be requested through a Public Records Act request.
• Wisconsin: the DFI Franchise Search lets you search a franchise registration to display its status and disclosure document.
• Minnesota: the Department of Commerce CARDS database includes franchise registrations.

Not every franchisor registers in every state, and a filed copy may not be the latest version. Use state filings for background research, and confirm everything against the FDD you receive.