1851

<div id="pastingspan1"><span style="">Before you purchase a franchise, it&#8217;s your responsibility to research potential franchisors to determine the best company in which to invest. You can do the bulk of this research by looking at companies&#8217; <a href="http://www.franchise.com/franchise-news/Basics_UFOC_info.cfm?utm_source=1851franchise.com&utm_medium=article&utm_campaign=10-things-to-look-for-in-a-restaurant-fdd-2832" target="_blank" rel="nofollow" target="_blank">Franchise Disclosure Documents</a> (FDD).</span></div><div>&nbsp;</div><div><span style="">The <a href="https://www.ftc.gov/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=10-things-to-look-for-in-a-restaurant-fdd-2832" target="_blank" rel="nofollow" target="_blank">Federal Trade Commission</a> legally requires all franchisors to give potential franchisees an FDD at least 14 days before the franchise sale. The document includes 23 detailed sections explaining the franchisor history, franchisor responsibilities to the franchisee, costs to the franchisee and franchisee obligations under the franchise agreement. It&#8217;s designed to help prospective franchisees weigh the costs and benefits of purchasing a specific franchise.</span></div><div>&nbsp;</div><div><span style="">While each item in the FDD is important, we&#8217;ve listed the top 10 things to look for, specifically in a restaurant FDD.</span></div><div>&nbsp;</div><div><span style="">1.	The most important piece to look at is item 19: financial performance representations. This section allows you to see full numbers, average revenue, average cost for operating and more. Prospective franchisees can more easily see how much money they&#8217;ll make by purchasing the franchise. For example, a few million in revenue sounds great, but if the costs are higher than expected, it&#8217;s no longer a good deal.</span></div><div>&nbsp;</div><div><span style="">2.	Next is item seven: total initial investment. In a restaurant brand, your investment cost will be the biggest expenditure. Section seven of the FDD includes a table that outlines the entire estimated cost of starting the franchise to the franchisee, including the initial franchise fee outlined in item five and additional costs paid to third parties. Additional costs include rent, utilities, equipment, inventory, signs, an initial advertising fee, training and licenses. The definition of the initial investment period varies by franchisor, but typically it&#8217;s at least three months.</span></div><div>&nbsp;</div><div><span style="">3.	Item three: litigation. Section three of the FDD lists lawsuits involving the franchisor, parent company, predecessor, affiliates and the executives. Any pending, current or recently resolved litigations will be listed. If something is listed, it is something you should probe, as it could be a deal-breaker.</span></div><div>&nbsp;</div><div><span style="">4.	Along with item seven, items five and six, Initial fees and other fees, are important when weighing the costs. Look above royalties to see if there is a general marketing fund, POS fees, technology or any other fees associated. Make sure you understand how much money you&#8217;ll have to put into the franchise relative to the money you&#8217;ll get out of it. One way to be sure is to review these costs with an accountant.</span></div><div>&nbsp;</div><div><span style="">5.	Item 12: Territory. Section 12 of the FDD states whether the franchisor will offer the franchisee the exclusive right to open a franchise in a given area. It also describes the circumstances in which the franchisor would approve a franchise relocation and any plans the franchisor has to open a competing franchise system. Territory rights are important because they protect the franchisee from competition. For example, if a restaurant franchise opens on the corner of 1st and Main, an exclusive territory right could prohibit the franchisor from opening another across the street.</span></div><div>&nbsp;</div><div><span style="">6.	Item 21: Financial statements. Section 21 of the FDD includes the franchisor&#8217;s audited financial statements from the previous three fiscal years. This tells you the health of the organization and helps you understand if they are capitalized and profitable enough to support the franchise system. This is most critical in smaller, newer restaurant brands.</span></div><div>&nbsp;</div><div><span style="">7.	Item 20: Outlets and franchisee information. This section includes five tables showing the number of franchised outlets and other company-owned locations in the past three years. This is important to look at if you&#8217;re considering a smaller, startup restaurant franchise because if it&#8217;s smaller, the franchisor might not have as much experience. For larger brands, you can see if the company is growing or shrinking. Have they closed 20 locations in the last year, or has growth been steady?</span></div><div>&nbsp;</div><div><span style="">8.	Again, if you&#8217;re considering a smaller brand, make sure you look at item two: business experience. This will show you if the franchisor has experience in the industry. If they don&#8217;t, now is the time to probe questions on the franchisor&#8217;s experience with the franchise system and operating restaurants.</span></div><div>&nbsp;</div><div><span style="">9.	Item 17: Renewal, termination, transfers and dispute resolution. Section 17 of the FDD includes a table summarizing the franchise agreement, including terms about renewal, extension and transfers of the agreement. It explains if a renewal means the franchise agreement terms will be extended, or if the terms are subject to change at the time of renewal. Make sure you understand the terms. Is there criteria for having to renew in X amount of years? What&#8217;s the transfer process if you decide to sell it?</span></div><div>&nbsp;</div><div><span style="">10.	Finally, it&#8217;s important to check out item nine: franchisee obligations. This section tells you what you&#8217;re responsible for and what you&#8217;ll need to do, if anything (participate in training, conferences, staff training, etc.).</span></div>

1851 Franchise

Due diligence is essential to finding success with a franchise model.

This brand page has been paid for by 1851. Content within this page that is paid will showcase a Sponsored icon. This means the brand has engaged 1851 FRANCHISE to write the content. Content without the Sponsored Icon is aggregated media placements the brand earned. Questions can be sent to editorial@1851franchise.com

10 Things to Look for in a Restaurant FDD   

10-things-to-look-for-in-a-restaurant-fdd

Preservan

How to Read the Preservan 2025 Franchise Disclosure Document

how-to-read-the-preservan-2025-franchise-disclosure-document

Woodhouse Spas

Why Woodhouse Spas Is in a Class of Its Own: Comparing the Franchise Opportunity Across the Wellness Industry

why-woodhouse-spas-is-in-a-class-of-its-own-comparing-the-franchise-opportunity-across-the-wellness-industry

Shuckin' Shack

Photo of person holding oyster and Shuckin' Shack hot sauce bottle

Shuckin’ Shack Looks Toward Columbus to Grow Georgia Presence

shuckin-shack-columbus-ga

BooXkeeping

Graphic with person sitting on bar chart, surrounded by coins and pie charts

Why Franchise Brokers Should Take a Closer Look at BooXkeeping

franchise-brokers-booxkeeping-investment

Franchise Bookkeeping Mistakes That Put You on the IRS Radar — And How BooXkeeping Helps You Avoid Them

franchise-bookkeeping-mistakes-that-put-you-on-the-irs-radar-and-how-booxkeeping-helps-you-avoid-them

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

Dave’s Hot Chicken Sold to Roark Capital in $1 Billion Deal to Fuel Global Expansion

daves-hot-chicken-sold-to-roark-capital-in-1-billion-deal-to-fuel-global-expansion

Homebuyers Keep Buying — And That’s Good News for Home Service Franchises - 1851 Franchise

Homebuyers Keep Buying — And That’s Good News for Home Service Franchises

homebuyers-keep-buying-and-thats-good-news-for-home-service-franchises

AI Could Push Unemployment to 20% — Fueling a Surge in First-Time Franchise Buyers - 1851 Franchise

AI Could Push Unemployment to 20% — Fueling a Surge in First-Time Franchise Buyers

ai-unemployment-impact-white-collar-job-loss

How To Sell Just One Franchise: What You’ll Learn at FranCamp NJ 2025

how-to-sell-just-one-franchise-what-youll-learn-at-francamp-nj-2025

From Franchisee to Franchisor: How Howard Picker Is Using His Experience to Drive Sustainable Growth at Floyd’s 99

howard-picker-floyds-99-barbershop-franchise-franchisor-hot-seat

KFC Franchise Costs, Fees, Profit and Data for 2025

kfc-franchise-deep-dive

Busy Bee Jumpers Franchise Costs, Fees, Profit and Data for 2025

busy-bee-jumpers-franchise-costs-fees-2025

Unlock Children's Potential: KLA Schools' Franchise Model Centers on Curiosity-Driven Learning

kla-schools-franchise-child-led-learning

The Ultimate Guide to Selling Franchises: How To Create a Strong Incentive

how-to-build-strong-incentives-to-attract-prospective-franchisees

The Ultimate Guide To Selling Franchises: How To Budget Properly

how-franchises-can-budget-their-finances-properly

The Ultimate Guide To Selling Franchises — How To Build Webinars

how-franchisors-can-build-effective-webinars-to-reach-prospective-franchisees

The Ultimate Guide to Selling Franchises: How to Position Your Value Proposition

The Ultimate Guide to Selling Franchises: How to Position Your Value Proposition — Point of Differentiation

how-to-position-your-value-proposition-with-a-point-of-differentiation

Sola Salons Franchisee Grows Salon Freedom Into a Multi-State Powerhouse 

sola-salons-franchisee-grows-salon-freedom-into-a-multi-state-powerhouse

Dan Yangas Brings Family Flooring Legacy Full Circle With Footprints Floors Franchise in Naperville 

Dan Yangas Brings Family Flooring Legacy Full Circle With Footprints Floors Franchise in Naperville, Illinois

dan-yangas-brings-family-flooring-legacy-full-circle-with-footprints-floors-franchise-in-naperville-illinois

10 Things to Look for in a Restaurant FDD

MORE STORIES LIKE THIS