Buy a Franchise
A smart Franchise Disclosure Document review starts with franchisor stability (Items 1 and 2), then financial potential (Item 19), and ends with investment costs (Item 7).
The Franchise Disclosure Document (FDD) isn’t meant to be read straight through like a novel, but it is meant to be read in a specific order. Not because the FTC says so, but because certain sections give you context that makes the others make sense. Without that context, it’s easy to misread what you’re seeing — or worse, miss what you’re not.
Peter Eberly, vice president of marketing for Strategic Franchising Systems, has guided countless candidates through this process. When asked where buyers should start, his answer is both simple and deliberate.
“I would start at the beginning — Item 1 and who the franchisor is,” Eberly said. “Have they been around for a while? Did they start last month?”
Item 1 tells you who the franchisor actually is. Not the brand story. Not the marketing pitch. The legal entity. How long it’s existed. Whether it has affiliates. Whether it’s new, seasoned or somewhere in between.
Then comes Item 2. The people. “Item 2 will talk about who is running things on the franchisor side,” Eberly said. “Their backgrounds and experience. That can help franchisees protect themselves from a brand that isn’t reliable.”
Before you ever worry about unit economics or territory maps, you should understand who you’re trusting to run the system you’re buying into.
Once you understand who’s behind the brand, then — and only then — it makes sense to ask the obvious question. Does this work financially?
“That will tell them whether or not they can make money doing this,” Eberly said. “It’ll show averages, medians, quartiles, etc. of financial performance.”
Item 19 is not a guarantee. It’s not a promise. It’s a disclosure of how existing franchisees are performing under defined conditions. It can help address any concerns or questions franchisees might have about the economics — or confirm them.
Importantly, Eberly believes how a franchisor handles Item 19 matters as much as what’s in it. “Any reputable franchisor should walk the candidate through the Item 19 in great detail,” he said.
If the franchisor downplays the Item 19, rushes past it or simply refuses to elaborate on it, that’s not a small issue. It’s a signal.
Only after understanding leadership and potential economics should buyers turn to the investment.
“The next thing I would focus in on is Item 7,” Eberly said. “How much does it really cost to get this off the ground?”
Item 7 provides details on the estimated initial investment, which means it’s where a potential franchisee’s enthusiasm often gets tested. But it’s important to understand that Item 7 isn’t the total investment; it’s the runway.
“[Item 7 provides] the typical investment range and where those dollars are going,” Eberly said. “That’s really helpful for franchisees who may be asking, ‘What do I need from an output standpoint before I start seeing revenue?’”
Item 6 doesn’t always get the attention it deserves. Buyers glance at the royalty percentage, nod and move on. That’s a mistake. “Also make sure to check out Item 6 — ongoing fees, royalties, brand fund, marketing fund, training fees,” Eberly said.
Those fees don’t exist in isolation. They exist in exchange for support. “What are those costs that are going to be a part of the system?” he said. “Line that up with the support that they get with those fees overall.”
Item 6 is where buyers start to understand the real operating relationship. Not just what they pay, but what they’re buying into — month after month, year after year.
Once buyers understand who the franchisor is, whether the economics make sense, how much it costs to get open and what ongoing fees look like, it’s tempting to mentally check the box on the FDD and move on.
That’s premature.
The remaining items may not grab headlines, but they often explain how problems show up — and how painful they can be when they do.
You might feel a little uneasy reading Item 3, which details any past litigation, but it's important. A single lawsuit isn't necessarily a red flag, but a pattern is. Take your time looking at who is suing whom, how often, and why. Pay special attention when a franchisee is suing the franchisor.
Item 4, on bankruptcy, is usually short if there's nothing to report, but when there is a history, it tells a big story. Item 5, covering initial fees, often gets overlooked because the amounts look small next to Item 7.
Item 8, which covers restrictions on where you can buy products and services, is the quiet section that reveals how much power the franchisor has over your purchasing and vendors. Then there’s Item 12, territory. This one deserves more attention than it usually gets. How territory is defined, protected and potentially reduced shapes growth plans, resale value and competitive pressure.
Item 15, which covers the obligations of the franchisee, is where things get serious. This section lays out exactly what you have to do, contractually, not just what the sales pitch suggested. Item 17, covering renewal, termination and transfer, is another section people often kick themselves for skimming. Last but not least, Item 20, which details outlets and franchisee turnover, gives you the real-world context that the raw numbers alone can't provide.
Want to explore which franchise categories are best positioned for 2026? Visit 1851GrowthClub.com and continue your journey through “The Complete Guide to Buying a Franchise in 2026.”
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