How to Read a Franchise Disclosure Document (FDD): A Buyer's Guide

The Franchise Disclosure Document (FDD) is the single most important document you’ll review when buying a franchise. It is long, sometimes several hundred pages, but knowing where to look makes it far more manageable.

This guide is general education, not legal advice. Always have a qualified franchise attorney review an FDD before you sign anything.

What is an FDD?

Under the Federal Trade Commission’s Franchise Rule, franchisors must give prospective buyers an FDD at least 14 calendar days before they sign a binding agreement or pay any money. The FDD follows a standard format of 23 Items, so you can compare franchise brands side by side. Some states also require franchisors to register their FDD with a state agency before offering franchises there.

The Items that matter most

Item 1: The franchisor and its business

Who the franchisor is, how long it has operated, its affiliates, and any industry-specific regulations, such as state home care licensing.

Item 2: Business experience

Background on the franchisor’s leadership team. Look for real operating experience in the industry.

Item 3: Litigation and Item 4: Bankruptcy

Lawsuits and bankruptcies involving the franchisor and its leaders. A handful of lawsuits isn’t unusual, but look for patterns, especially disputes with franchisees.

Item 5: Initial fees and Item 6: Other fees

The initial franchise fee and every ongoing fee, including royalties, brand fund, technology, training, transfer, and renewal fees. Make sure you understand when and how each is calculated.

Item 7: Estimated initial investment

A table showing the low-to-high range of what it costs to open, including working capital for an initial period. Pay close attention to the “additional funds” line. See our home care franchise cost breakdown for what to expect.

Item 8: Restrictions on sources of products and services

Whether you must buy certain products, software, or services from approved suppliers, and whether the franchisor earns revenue from those purchases.

Item 11: Franchisor’s assistance, advertising, computer systems, and training

What support you’ll actually receive before and after opening, including the training curriculum and typical time to open.

Item 12: Territory

Whether you receive a protected territory, how it is defined, and any circumstances where the franchisor or others can operate within it.

Item 17: Renewal, termination, transfer, and dispute resolution

How long your agreement lasts, how to renew, what can cause termination, how to sell your business, and how disputes are resolved. Read this section carefully with your attorney.

Item 19: Financial performance representations

If the franchisor chooses to share financial performance data about existing units, it appears here, along with the assumptions behind it. Not every franchisor includes an Item 19. If there isn’t one, ask current owners directly about their experience.

Item 20: Outlets and franchisee information

Unit counts over the past three years, including openings, transfers, terminations, and closures, plus contact information for current and former franchisees. This is your roadmap for validation calls.

Item 21: Financial statements

The franchisor’s audited financial statements. Look at whether the franchisor is adequately capitalized to support its system.

How to validate with current owners

Calling franchisees listed in Item 20 is the most valuable part of your research. Ask:

• How accurate was the Item 7 estimate for your actual opening costs?
• How long did it take to open, and to reach break-even?
• How helpful was the training? How responsive is ongoing support?
• What do you wish you had known before you signed?
• Would you make the same decision again?

Try to speak with owners at different stages, including brand-new, established, and multi-unit operators.

Red flags to watch for

• Pressure to sign quickly or before the 14-day waiting period
• Financial performance claims made outside of Item 19
• A high number of closures or transfers in Item 20
• Former owners who are unwilling or unable to speak freely
• Vague answers about support, territory, or fees

How All Hours approaches the FDD

At All Hours Home Healthcare, franchises are awarded only to licensed healthcare providers, and reviewing the FDD together is a dedicated step before any franchise is awarded. See our ownership process. We’ll walk through it with you, answer your questions, and encourage you to take your time and involve your own advisors.

Ready to take a look? Request franchise information to get started.