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Before buying a restaurant franchise in the United States, check the current Franchise Disclosure Document (FDD), every attached agreement, and the evidence behind its cost and performance claims. The FDD has 23 required items. The Federal Trade Commission says you must receive it at least 14 days before you are asked to sign a contract or pay the franchisor or its affiliate; use that time to investigate, not just to read the sales summary.
Start with the current, complete FDD
Request the full FDD and proposed agreements in a format you can keep and review. The FTC says a prospective buyer may request an FDD after the franchisor has received an application and agreed to consider it, and recommends getting it before spending money investigating the offer. Check the issue date and ask whether the offering or agreements have changed. If terms changed, or state requirements may apply, have a franchise lawyer confirm what timing and disclosures govern your transaction.
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Check that the exhibits referenced in the document are actually included and readable. Pay particular attention to the franchise agreement, addenda and state riders, financial statements, and any written support for Item 19 claims. Get written clarification for missing, inconsistent, or illegible material. Keep the FDD, exhibits, and dated receipt together.
Use the 23 items as a review map
| FDD item(s) | Subject to inspect |
|---|---|
| 1–4 | Franchisor and business background; executives; litigation; bankruptcy |
| 5–7 | Initial fee; other fees; estimated initial investment |
| 8 | Restrictions on sources of products and services |
| 9–11 | Franchisee obligations; financing; training and assistance |
| 12–16 | Territory; trademarks; patents and copyrights; participation in operations; restrictions |
| 17 | Renewal, termination, transfer, and dispute resolution |
| 18–19 | Public figures in franchise sales; financial performance representations |
| 20 | Outlet changes and franchisee contacts |
| 21–23 | Franchisor financial statements; contracts and other exhibits; receipt |
Read the disclosure alongside the agreements, not as a replacement for them. The details vary by offering, and the contract language—not a sales presentation or an FDD summary—sets the parties’ relationship.
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Separate the initial fee from the total investment
Item 5 states the initial franchise fee; Item 7 estimates total initial investment and breaks out startup-cost categories. They answer different questions. Read who receives each payment, when it is due, and whether it is refundable, recurring, or paid to an affiliate or supplier. Verify those terms against the agreement rather than relying on a presentation.
Test the Item 7 estimate against your site and plan
Compare the estimate with the restaurant format and location you are considering: local build-out, equipment, lease terms, opening schedule, and the working capital you expect to need. Treat the estimate as specific to the offering and its assumptions, not as a guarantee that your restaurant will open for that amount. The FTC materials do not establish a universal restaurant franchise startup cost; build a location-specific budget rather than substituting an unsupported national average.
How should you assess suppliers, territory, and support?
Required purchases and supplier economics
For Item 8, identify required ingredients, equipment, technology, distributors, and other goods or services. Find out whether the franchisor or an affiliate receives revenue from required purchases. Ask operators about the cost and quality of mandated products; the brand name alone does not establish what you must buy or what those goods will cost.
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For Items 9–11 and 13–16, read each disclosure against the matching agreement provisions. Work out what you must do, what training and opening assistance are promised, what advertising or technology obligations apply, how trademarks and other intellectual property may be used, and whether you must personally participate in operating the business. Ask for specifics about deliverables and timing, then compare the written commitments with franchisees’ accounts of what they received.
Territory and exceptions
Item 12 is not enough to tell you whether a market is protected in practice. Check whether the written grant is exclusive and whether channels, formats, or competing outlets are carved out. Have counsel explain how the grant would apply to the intended market and proposed restaurant.
What do the sales and earnings claims actually establish?
Item 19 financial performance information is optional. If the franchisor makes sales or earnings claims, they must appear in Item 19 and have a reasonable basis. Inspect the source, reporting period, outlet population, limitations, and assumptions, and request the written substantiation. Ask whether the data conditions resemble the restaurant you may operate; a figure drawn from a different group of outlets or circumstances may not answer your question.
Treat an earnings or sales statement from a salesperson that is not in Item 19 as unresolved until you get a clear written explanation. The FTC says financial performance claims generally cannot be made outside Item 19, subject to narrow exceptions, such as actual records for an existing outlet you are considering.
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What can Item 20 tell you about the franchise system?
Review the three-year outlet tables for openings, closures, transfers, and terminations. Look for patterns and investigate closures in or near your intended market. The tables show movement, not the reasons behind it, so ask the franchisor and operators for context rather than treating a single change as proof of a cause.
Use Item 20’s current and former franchisee contacts to compare accounts across operators. The FTC recommends reaching out broadly. Newer operators may be able to describe investment, opening timing, training, advertising, supplier cost and quality, progress toward break-even, and satisfaction. Useful questions include:
- What did you actually pay to open, and which costs differed from the estimate?
- Which ongoing fees and required purchases matter most to your operating budget?
- Did training and opening support arrive when promised?
- How much owner labor does the business require?
- What would you check more closely before buying again?
- For former operators: why did you leave, and what happened during the transfer or closure?
Compare answers across owners; one unusually positive or negative account may not represent the system.
What do the agreement and financial statements mean for your options?
Renewal, transfer, termination, and disputes
Use Item 17 to identify provisions to examine in the actual contract. Ask what conditions and deadlines apply to renewal, whether fees or terms can change, which defaults can lead to termination, whether a sale requires approval, and how disputes are handled—through court, arbitration, or another process. Check post-termination restrictions, including limits on competing activity, and ask a lawyer to assess their enforceability and practical effect in the relevant jurisdiction.
Read every proposed agreement
Item 22 attaches the proposed franchise and related agreements. Read all of them and compare their terms with the FDD summaries. Review leases, options, and purchase documents too when they are included. The FTC cautions that the contract governs the relationship, so do not assume a summary or oral explanation overrides its wording.
Assess the franchisor and complete the record
Review Item 21’s financial statements and notes with an accountant to assess the franchisor’s financial condition and ability to provide the support it promises. Item 1’s background can help identify the entities responsible for obligations and support; Item 2 identifies directors, principal officers, and key executives. Consider their experience with franchise systems.
Read Item 3’s specified litigation and legal history for what each matter concerns and its status. A lawsuit’s presence alone does not prove wrongdoing. Item 4 concerns bankruptcy history; inspect the actual disclosure and ask counsel about any entry. Item 18 identifies public figures involved in franchise sales. Item 23 is the receipt: confirm that it accurately lists the documents and exhibits you received, then retain the dated copy.
How to compare two actual offers
Use the same evidence and assumptions for each brand and proposed location. The FDD provides topics for comparison, not a ranking or a conclusion about which opportunity is better.
| Compare | Evidence to line up |
|---|---|
| Opening economics | Total initial investment, payment timing, and operators’ actual opening costs |
| Ongoing costs | Royalties, marketing and technology fees, required purchases, and supplier restrictions |
| Market and operations | Territory scope and exceptions, training, opening support, and operators’ reports of support |
| Performance information | Item 19 outlet population, period, data source, limitations, and assumptions |
| System movement | Item 20 openings, closures, transfers, and terminations, with operator explanations |
| Contract and franchisor | Renewal, transfer, termination, and dispute terms; financial condition and leadership experience |
Who should review the FDD before you sign?
Ask an independent franchise lawyer to review the FDD, agreement, and applicable state requirements, and an accountant to examine the investment assumptions, financial statements, and any performance claims. A restaurant’s permit and location requirements also depend on its jurisdiction and format. The guidance here is federal U.S. due-diligence information, not advice about a specific offering or state filing; qualified professionals can address your transaction and location.
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