An FDD has 23 items. Five of them drive most of your diligence. This guide covers those five using examples from 20 brands we’ve extracted and modeled across 3 categories.
Item 5 discloses the upfront fee you pay the franchisor for the right to use the brand. It’s the number most buyers see first, and it’s often the least informative.
What to look for: Whether the fee is fixed or varies by territory type, and whether it includes anything beyond the license itself.
What it hides: Item 5 is just the franchise fee. It does not include mandatory training packages, supply kits, or marketing commitments that are due at signing. Those appear in Item 7.
Takeaway: The franchise fee alone tells you almost nothing about cost to enter. Always read Item 5 and Item 7 together. See our cost-to-enter comparisons (mosquito, lawn, cleaning) for how these fees differ across brands.
Item 6 is a table of every recurring fee the franchisor can charge you. Royalty gets the headline, but marketing minimums, technology fees, call center charges, and convention fees can add up to more than the royalty itself.
What to look for: The royalty rate, obviously. But also: whether it’s flat or tiered, whether there are minimums that kick in at later years, and what other mandatory fees exist beyond royalty and marketing.
What it hides: Item 6 states the rate but not the dollar impact. A 10% royalty at $200K revenue is $20,000/year. At $500K it’s $50,000. Fee structure is in the FDD. Fee burden requires modeling. See our fee burden comparisons (mosquito, lawn, cleaning) for modeled totals at multiple revenue levels.
Item 7 is a table showing the estimated range of costs to open and operate through the initial period. It includes the franchise fee from Item 5 plus equipment, marketing, insurance, professional fees, and working capital reserves.
What to look for: The total range matters less than what’s inside it. Reserve requirements can inflate a range by $80K+ without changing the actual cost of launching the business. Line items labeled “additional funds” or “working capital” are reserves, not expenses.
What it hides: Item 7 gives ranges, not predictions. The low end typically assumes minimal marketing and owned equipment. The high end includes everything. Most buyers land somewhere in the middle, but the FDD doesn’t tell you where.
Item 19 is the most searched-for section of the FDD, and the most misunderstood. Franchisors are not required to provide any financial performance data. If they choose to, they must follow specific disclosure rules—but they have wide discretion in what they include and how they present it.
What to look for: Whether the brand provides an Item 19 at all. If it does: whether it reports averages, medians, or distributions. Whether it includes expenses or just revenue. What percentage of units are excluded from the reported numbers, and why.
What it hides: Even detailed Item 19 data is selective. Brands choose which units to include and which to exclude. A common pattern: exclude units open less than 12 or 24 months, which removes the worst-performing cohort (startups) from the average. The FDD must disclose the exclusion criteria, but the impact on the reported numbers is left to the reader to judge.
Item 20 is a standardized table showing how many franchised and company-owned outlets existed at the start and end of each reporting year, and how many opened, closed, transferred, or “ceased operations” during the year. This is the most consistently comparable data in the entire FDD.
What to look for: Three-year trends matter more than any single year. Net growth (openings minus closings) tells you whether the system is expanding or contracting. Transfer volume tells you how many franchisees are selling. “Ceased operations/other” is the catch-all category that often hides the most interesting stories.
What it hides: Item 20 counts outlets, not revenue or profitability. A brand can grow its outlet count while average unit economics decline. Conversely, a brand can shrink its network while remaining profitable if closures are concentrated in underperforming territories.
Even a thorough FDD has structural blind spots:
This is why discovery day matters. The FDD tells you what the franchisor is legally required to disclose. The conversations you have with current franchisees and the franchisor’s team tell you everything else. Our Decision Reports include brand-specific discovery day questions derived from each brand’s FDD.
See this data applied across 20 brands in 3 categories: