How to read an FDD

Hey readers,

It’s extremely long. It’s incredibly boring. But it’s the linchpin of the franchise discovery process. 

It’s… The Franchise Disclosure Document (FDD).

This document is packed with TON of information to help you, the potential franchise owner, compare apples to apples between different brands. 

But did I mention it’s long? And boring? 

That’s what I’m here for. I’ve read hundreds of these things. And I’m going to walk you through the 10 most important items in an FDD.

Let’s do it!

Where to find FDDs

Before we start — lots of FDDs are publicly available. You can look them up yourself, in seconds, from places like the Wisconsin government website right here. 

(Search a brand name, click “Details” on the right, then there’s a button to download the FDD at the bottom.)

So if you’ve got a brand you’re interested in, pull up their FDD and follow along. 

I’ll use this sample FDD for a crime scene cleaning business called Bio-One.

Let’s get started.

Item 1: What’s this business all about?

Item 1 is mostly biographical. The history of the franchisor, parent companies, affiliates, even if the franchise has changed hands in the past. 

What you’re looking for: Background information. Do things look pretty straightforward? Or is it a complicated hierarchy of parents and affiliates and ownership changes? 

If Item 1 gives you a headache, proceed with caution. 

Item 2: Who are you getting into business with?

This gives you some insight into their leadership team. Interactions with the brand’s leadership is one of the most important parts of the discovery process, so this is your first glimpse into who they are as professionals.

What are their backgrounds? Do they have focus? 

What you’re looking for: Serious people. Item 2 should give you confidence that leadership has the experience to serve you well — because remember: their customer is you. 

Item 3: Who’s gotten upset, and why?

Bio-One’s litigation section is nice and short. Basically, “nothing to see here.”

They won’t all be like that. It’s very common for franchisors (especially large brands) to have some history of litigation, so don’t treat it as disqualifying.

But if there are claims against the franchisor, make sure you understand them. Sometimes, they can raise questions or concerns you might not have otherwise thought about.

Items 5, 6 & 7: How much does it cost you?

Here’s where the rubber hits the road. How much is it going to cost you?

Item 5 is mostly about the one-time “franchisee fee” you pay for the right to develop the franchise, and any terms around it. 

Item 6 lays out the ongoing fees, which typically include:

• Royalties: the % of gross revenue the franchisor takes

• Marketing fund: with many brands, you have to pay into a central pot for national marketing and brand awareness

• Technology fees: these cover the tech platforms you use as a franchisee

Item 7 lays out the total initial investment to start and operate the franchise. Usually this is a range that depends on variables like location, number of territories, and level of owner involvement.

What you’re looking for: Numbers you can handle. Plan for your first unit to cost more than their projections, because things are always harder the first time around. 

Item 8: Who can you buy from?

This item lays out any restrictions the brand has on where you can source your products or services.

Many franchises force you to use specific vendors. 

Sometimes this is necessary for quality control — McDonald’s doesn’t want you buying ground beef from the horse farm down the street. 

In sketchier brands, these restrictions can be a cash grab for the franchisor, if they either own the vendor (which should be disclosed in Item 1) or if they’re getting rebates.

Lastly, franchisors can often get good deals on inventory thanks to the purchasing power of all their franchisees. So figure out if those savings are passed along to you, or just added to the franchisor’s bottom line.

Item 12: Where are you operating?

This one lays out how much territory you get that’s protected or exclusive to you. 

It can vary by geographic size or by population — but also by the level of exclusivity. Make sure you understand the thought process and data behind how a franchisor maps out their territories. Does it give you enough of a market to successfully build this business?

Item 19: How much will you make?

This is what everybody wants to know. How much money do these franchises make?

If that’s your question, please remember: these numbers are just the starting point, not the finish line.

The franchisor has a lot of latitude in terms of how much they disclose here. You might see:

• Hard numbers outlining revenue and expenses

• Context outlining any assumptions made in those numbers

• Disclaimers around the limitations of the data provided

• Or, like with Bio-One, they might tell you nothing at all.

Things to keep in mind:

Franchisors can only share what they’ve disclosed during the discovery process. This means anything they tell you, they’ll be prepared to back up in court. 

These numbers can swing depending on how many units’ numbers are aggregated. If you’re seeing an average revenue of one location, that tells you very little about a different location. An average of 100 is much better.

Geography also swings these numbers. If you’re looking at the financial data of 50 franchise locations in affluent, urban, coastal markets, that doesn’t tell you much about how a rural location will do. 

So how do you parse this information? 

That leads us to…

Item 20: What’s the big picture?

There are two parts to Item 20.

First, an overview of how many franchisees the system has, how many are open, how many have been transferred to another franchisee, and how many have closed.

Two things to keep in mind:

• FDDs are filed annually, so these numbers may not be up to date

• Franchises can keep their “closure” rate low by buying out failing franchisees at a discount

Secondly, Item 20 gives you contact information for existing franchisees.

Lots of brands will host “group validation calls”, where they hold discussions between current and potential franchisees — those are good, but even better is picking up the phone yourself. 

I’ve had great conversations with franchisees. They’re often eager to help, and don’t have any reason to spin the information. 

Even better, while the franchisor can’t share financial information with you outside of Item 19, the franchisee can share whatever they like. In other words, get friendly and you can learn a lot.

—

The final word

The FDD can be overwhelming. But it really is one of the best tools to avoid costly mistakes. 

We just looked at the 10 most important sections, but every single section sheds a little light on what you’re getting into.

So if you want a helping hand, from a guy who’s read hundreds of these things… you know who to call. Book a time here.

Talk soon!

Connor

P.S. “All franchises are created equal,” said… nobody ever. So In my upcoming webinar with Michael Girdley, I’m talking about the 3 hottest franchise models in 2025 (plus a few to avoid like the plague). Sign up here!

P.P.S. Do you know how Rick Ross actually makes money?

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