1851

Regardless of your business experience, reading a franchise disclosure document is no easy feat. Made up of 23 sections called &lsquo;Items,&rsquo; FDDs provide prospective franchise buyers with a detailed cross-section of the business ownership opportunity they are considering.

Despite their length (these documents can reach upwards of 200 pages) and jargon (why does &lsquo;Item 19&rsquo; sound like the key piece of evidence from a crime scene?), FDDs are perhaps the most valuable tool when determining whether or not a franchise opportunity is the right fit. 

<a href="https://1851franchise.com/" style="text-decoration-line:none" target="_blank">1851 Franchise</a> consulted franchisees and franchisors to nail down some tips to keep in mind when reading an FDD for the first time.

Take advantage of the structure

&ldquo;Franchising is so much more structured than normal business purchases,&rdquo; Gary Smith, a <a href="https://www.dreamvacationsfranchise.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=tips-for-reading-a-franchise-disclosure-document-franchisors-and-franchisees-weigh-in-2709376" target="_blank" rel="nofollow" style="text-decoration-line:none" target="_blank">Dream Vacations</a> franchise owner based in Eugene, Oregon, said of his initial takeaway after reading an FDD. &ldquo;Having bought and sold several [non-franchise] businesses, the disclosures and amount of information provided, among other FDD elements, made this a much different evaluation process than a normal business purchase.&rdquo;

Part of the reason for this is the specific layout of FDDs mandated by the Federal Trade Commission. On behalf of the prospective franchise buyer, the FTC requires a uniform presentation of the document to aid in the reader&rsquo;s understanding.

&ldquo;FDDs are structured by law, so it&rsquo;s fairly easy to compare them side by side,&rdquo; said <a href="https://www.corelifeeatery.com/franchising/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=tips-for-reading-a-franchise-disclosure-document-franchisors-and-franchisees-weigh-in-2709376" target="_blank" rel="nofollow" style="text-decoration-line:none" target="_blank">CoreLife Eatery</a> president Scott Davis. &ldquo;One of the best ways to understand the differences between companies and their intent is to get FDDs from similar concepts to compare against each other.&rdquo;

Doing so, Davis explained, helps franchise candidates ask better questions during the evaluation process to arrive at a more holistic understanding of how a brand fares in its particular industry.

Note the restrictions a franchise brand has in place

As Smith pointed out, the franchise model maintains a very particular constitution. As such, there are many restrictions and limitations that exist in franchising that warrant consideration in a prospective buyer&rsquo;s evaluation process. When going through an FDD, franchise candidates should identify the limitations set by a particular brand and make sure they are comfortable operating within those boundaries.

&ldquo;Unlike my past businesses that I started independently, there were a lot of restrictions on how I could run my franchise business that needed to be factored into my decision,&rdquo; Smith said. He explained that while he recognized that these restrictions served as the basis for system-wide brand uniformity and understood that the power of a franchise lies with its proven system, an inability to adjust to local conditions or take advantage of market opportunities could be a deterrent for some. 

&ldquo;A true entrepreneur may have some reservations about buying a franchise,&rdquo; CoreLife Eatery Senior VP of Franchise Development Steven Corp added. &ldquo;A franchise, by definition, is the ability to operate your own business under the guidelines of the franchisor.&rdquo;

Approach the document with a critical eye

Despite its breadth, Smith cautioned that FDD readers shouldn&rsquo;t assume that the document contains all relevant purchase information.

&ldquo;The hardest part of reading the FDD was trying to figure out what wasn&rsquo;t included that I needed to know,&rdquo; he said. &ldquo;The size and scope of the document can lead you to believe everything you need to know is in the document, but it isn&rsquo;t always.&rdquo; 

The onus, therefore, falls on the prospective franchise buyer to identify any inconsistencies or areas where more information is needed in order to gain the best view of the entire business opportunity. One area Smith specifically recommended readers take a careful look at and independently verify was the Estimated Initial Investment section, or Item 7.

Overall, Smith advised, &ldquo;Read with a skeptic&rsquo;s eye to see what might be missing. If anything seems questionable or isn&rsquo;t clear, ask your franchisor&rsquo;s recruitment team to review it with you.&rdquo;

Contact other franchisees

Franchisor and franchisee agree: the most valuable part of an FDD is the franchisee list contained in Item 20. That internal validation of whether the people currently occupying the very position a prospective franchise buyer is debating whether to take on are satisfied and successful is critical information in the franchise purchasing process.

&ldquo;<a href="https://1851franchise.com/how-to-review-item-20-1204" style="text-decoration-line:none" target="_blank">[Item 20]</a> allowed me to contact others, ask questions, and gauge my ability to duplicate those who have been successful and avoid the mistakes of those who weren&rsquo;t meeting their goals,&rdquo; Smith said. &ldquo;Use the list of existing units to your advantage. Contact as many as you can with a simple, non-invasive, survey that will help you judge if you are a good fit for this opportunity and if you can be successful enough with the opportunity to achieve your goals.&rdquo;

&ldquo;Talk to current and former franchisees about their experiences with the brand,&rdquo; Davis similarly advised. &ldquo;Also ask questions, as many as possible.&rdquo;

While FDDs are undoubtedly complex, franchise candidates will succeed when they ensure that they have reviewed and understood the entire document before making a decision.

reading an FDD, FDD, FDD tips, Franchise disclosure document

Tips For Reading a Franchise Disclosure Document: Franchisors and Franchisees Weigh In

1851 Franchise

FDDs can be daunting to those exploring franchise opportunities for the first time. Use these tips to successfully navigate FDDs, no matter how dense.

tips-for-reading-a-franchise-disclosure-document-franchisors-and-franchisees-weigh-in

TruBlue Home Service Ally

Why TruBlue is the Ideal Franchise for Multi-Unit Owners: Scalable Growth With a Purpose

why-trublue-is-the-ideal-franchise-for-multi-unit-owners-scalable-growth-with-a-purpose

Onigilly Japanese Kitchen

Koji Kanematsu Turned a 2,000-Year-Old Japanese Staple Into One of the Most Scalable Restaurant Franchise Models

koji-kanematsu-turned-a-2000-year-old-japanese-staple-into-one-of-the-most-scalable-restaurant-franchise-models

Lindora

Celebrating the Nurse Behind the Mission: How Melinda Endricks Is Powering Lindora’s Growth and Impact Nationwide

celebrating-the-nurse-behind-the-mission-how-melinda-endricks-is-powering-lindoras-growth-and-impact-nationwide

Sola Salons

Sola Salons Targets Chicago for Strategic Franchise Growth

sola-salons-targets-chicago-for-strategic-franchise-growth

Melting Pot

Photo of Melting Pot white chocolate fondue

How Melting Pot Franchisees Drive Year-Round Success Through Strategic Promotions and Local Marketing

melting-pot-franchise-year-round-success

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 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

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands - 1851 Franchise

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands

doordash-acquistions-deliveroo-sevenrooms

Crumbl Franchise Investment - TSG Consumer Partners -  1851 Franchise

TSG Consumer Partners Takes Minority Stake in Crumbl, Signaling Franchise Growth Potential

crumbl-franchise-investment-tsg-consumer

Yum Brands Reports Strong Q1 Results with Big Boost from Taco Bell

yum-brands-reports-strong-q1-results-with-big-boost-from-taco-bell

QSR: McDonald’s Gains Momentum With Chicken Innovation, Value Deals and Franchisee Support

mcdonalds-franchise-recovery-chicken-strategy-value-deals-2025

The Future of Franchising: Trends and Predictions for 2025 and Beyond

the-future-of-franchising-trends-and-predictions-for-2025-and-beyond

Layoffs Surge to Pandemic-Era Highs, Opening Doors for Franchise Growth

layoffs-surge-to-pandemic-era-highs-opening-doors-for-franchise-growth

Franchisee spotlight image with Randy and Sandy Craft, Children's Lighthouse logo on blue background

The Crafts’ Successful Journey from New Parents to Children’s Lighthouse Franchisees

the-crafts-successful-journey-from-new-parents-to-childrens-lighthouse-franchisees

Franchisee spotlight graphic with photo of Amy Lepke and family and Papa Murphy's logo

After 14 Years as a Stay-At-Home Mom, Amy Lepke Returned to Papa Murphy’s — This Time as an Owner

papa-murphys-franchise-amy-lepke

Franchisee Spotlight with Micki Waters and Papa Murphy's Logo

Work Mom: How Micki Waters Became a Mother Figure to Her Entire Papa Murphy’s Team

work-mom-how-micki-waters-became-a-mother-figure-to-her-entire-papa-murphys-team

District Taco Franchise Costs, Fees, Profit and Data for 2025

franchise-deep-dive-district-tacos-franchise-costs-fees-profit-and-data

Franchisee spotlight image with photo of Robert Trujillo and UWRG logo on blue background

How Robert Trujillo Expanded His Construction Business With UWRG

how-robert-trujillo-expanded-his-construction-business-with-uwrg

Tips For Reading a Franchise Disclosure Document: Franchisors and Franchisees Weigh In

MORE STORIES LIKE THIS