Before you talk to a single salesperson
- What's your realistic total investment, using the high end of FDD Item 7's range, not the low end — and do you have that in cash and financing, plus a working-capital cushion beyond it?
- What's the royalty and ad-fund rate, and have you modeled it against your own expected margins in your own market — not the franchisor's example numbers?
- What territory are you actually getting — exclusive, protected, or can the franchisor place another unit nearby later?
When you get the FDD
- Read Item 20 first. It discloses how many outlets opened, closed, transferred, or were terminated in the last three years. A high closure or transfer rate is the single most honest signal in the entire document.
- Read Item 21. These are the franchisor's own audited financials. A financially unstable franchisor can't support you when things get hard, no matter what the sales deck promises.
- Read Item 19 carefully — or notice its absence. Item 19 is where a franchisor may (but isn't required to) disclose actual unit financial performance. No Item 19 doesn't mean the opportunity is bad, but it does mean you're evaluating on their word alone.
- Use the full 14-day waiting period. It's federal law, it can't be waived, and a franchisor pressuring you to sign faster than that is showing you exactly how they'll treat you once you're locked in.
Before you sign
- Call current franchisees yourself — five or more, a mix of new and multi-year owners, not just the two names the franchisor hands you. Ask specifically about royalty collection experience, support responsiveness, and whether the FDD's cost estimates matched reality.
- Have a franchise attorney review the agreement — not the FDD summary, the actual contract — for territory protection, transfer/exit rights, non-compete terms, and renewal conditions.
- Confirm you understand the exit. Most franchise agreements require franchisor approval to sell, and some carry a right of first refusal. Know how you'd get out before you're in.
None of this replaces professional legal and financial advice specific to the brand and your state — treat this checklist as the floor, not the ceiling, of your diligence.