The Franchise Disclosure Document is the most important thing you’ll read before you buy a franchise. It’s also the thing most buyers skim. Don’t be that buyer. Check out the FDD Vault. Refer back to it often.
The FDD
To begin with, The FDD is a legal document that every franchisor has to hand you. It lays out the fees, the rules, the lawsuits, the numbers and the contract you’d be signing. It’s split into 23 sections, called Items, and the whole thing can run hundreds of pages.
Why does it matter so much? Because it’s where a franchisor has to tell you what the sales pitch leaves out. Who they’ve sued. Who has sued them. How many owners quit. What it really costs to open.
Fact: Federal rules require a franchisor to give you the FDD at least 14 days before you sign anything or pay anything. And the FTC doesn’t verify what’s in it. That part is on you.
As is reading through everything in the FDD Vault.
The FDD Vault: Who’s Walking You Through This?
I’m Joel Libava, The Franchise King®.
I’ve spent more than 25 years in franchising. I’ve reviewed hundreds of FDDs, written two books, and spent eight years as a franchise contributor to the U.S. Small Business Administration blog. The New York Times, Forbes, CNBC and Entrepreneur® have all cited my work.
I’m not a franchise lawyer, and I’ll never pretend to be anything else.
I’m a Franchise Ownership Advisor. Buyers pay me for my expertise.
Finally, everything on this page is meant to help you understand the FDD, ask better questions and avoid expensive mistakes.
Hire a Franchise Attorney. No Exceptions.
Here’s the part I won’t soften. Before you sign anything, have a franchise attorney go over the FDD with you.
Not a general business lawyer. Not your cousin who handles real estate closings. A franchise attorney. These folks read and negotiate franchise agreements for a living, and they’ll spot problems you and I will miss.
I can show you what to look for and what to ask. A franchise attorney tells you what the contract means for you, and what can be negotiated. That’s the law, and it’s their job, not mine. Hire a CPA, too, so someone has checked the numbers.
Need to find a lawyer who specializes in franchise law?
If so, I run The Franchise Attorney Directory, where you can find a local franchise attorney.
Fact: Nothing on this page is legal advice. It’s education from someone who has been around franchising a long time. Your franchise attorney gives the legal advice.
Inside the FDD Vault
Get the Document First
Never pay for an FDD. Here’s how to get free franchise disclosure documents, including the free state databases you can search, and why you should steer clear of paid FDD exchanges.
Know What You’re Looking At
Twenty-three Items can feel like a lot. This breakdown of what the 23 items in an FDD cover explains each one in plain English. It also points out the three that tell you the most: Items 19, 20 and 21.
Read It the Right Way
Reading an FDD isn’t like reading a novel. My guide on how to read a franchise disclosure document covers how to go slowly, highlight what confuses you and bring your questions to your attorney.
Spot the Trouble
Some things in an FDD should make you stop and think. Here are 5 FDD red flags to watch for, from lawsuits and bankruptcies to owners who keep leaving. One flag might be explainable. Several together usually mean walk away.
Don’t Fall for the Big Numbers
Item 19 is where a franchisor may tell you what owners earn. Those figures are often impressive. I even made up a franchise to prove it. Learn how to analyze franchise earnings claims the smart way. Numbers, schmumbers.
The FDD Is Not the Business
My dad, Jerry Libava, helped open 300 franchise units. His lesson stuck with me: the FDD is not the business. Research the business first. Then read the document.
My Dad’s FDD Strategy
He also had a simple approach to the document. It doesn’t make the folks who sell FDD analysis books and software very happy. But it works. Here’s my dad’s franchise disclosure document strategy and decide for yourself. Video:
The FDD Vault is a Resource. Want Something more Personal? Like a Second Set of Eyes?
Maybe you’ve got an FDD sitting on your desk and you’re not sure where to start. I can help.
Book a one-on-one franchise consultation and we’ll talk through your goals, your budget and the questions you should be asking. Or order a Franchise Evaluation Report on a specific brand you’re considering.
And remember, I get paid by you, not by the franchisor. Ever. And if the answer is “don’t buy this one,” I’ll tell you.
Then take everything to your franchise attorney. Every time.
Here are a couple more articles I wrote about the FDD:
I wrote this one for the U.S. Small Business Administration.
My Medium page has a lot of franchise articles. Here’s a comprehensive one on the FDD.
