Franchise Disclosure Document Review Checklist

# Franchise Disclosure Document (FDD) Review Checklist **Prepared For:** [FRANCHISEE CANDIDATE NAME / COMPANY NAME] **Date of Review:** [DATE] **Franchisor Name:** [FRANCHISOR COMPANY NAME] **Franchise Concept / Brand:** [BRAND NAME] **Reviewed By:** [REVIEWER NAME / ATTORNEY NAME] **State of Intended Operation:** [STATE] --- ## 1. Introduction and Purpose ### What This Document Is This Franchise Disclosure Document (FDD) Review Checklist is a comprehensive, structured tool designed to guide prospective franchisees, their attorneys, and financial advisors through a thorough analysis of a Franchise Disclosure Document before signing any franchise agreement or paying any fees. Under the Federal Trade Commission's Franchise Rule (16 C.F.R. Part 436), franchisors operating in the United States are required to provide prospective franchisees with a current FDD at least 14 calendar days before any agreement is signed or any money is exchanged. This mandatory disclosure document contains 23 specific items of information and is often 100–400 pages long, making a systematic review process essential. ### Who Should Use This Checklist - **Prospective franchisees** conducting their own initial due diligence - **Business attorneys** reviewing an FDD on behalf of a client - **Financial advisors and CPAs** evaluating the investment viability - **Business consultants** advising startup founders entering franchising - **Entrepreneurs** comparing multiple franchise opportunities ### How to Use This Document Work through each section sequentially. For each item, mark the status, record your findings, and note any red flags or questions for follow-up. This checklist is organized to mirror the 23-item structure of the FDD itself, followed by additional due diligence considerations not explicitly covered in the disclosure document. **Review Status Codes:** - ✅ **Clear** — Reviewed, satisfactory, no concerns - ⚠️ **Caution** — Reviewed, minor concerns, needs clarification - 🚩 **Red Flag** — Reviewed, significant concern, requires legal/financial consultation - ☐ **Pending** — Not yet reviewed > **Important:** Allow a minimum of 3–5 business days to complete this checklist thoroughly. Do not rush this process. The FDD review period exists to protect your investment. --- ## 2. Pre-Review Preparation Before analyzing individual FDD items, complete the following preparatory steps: ### 2.1 Document Authenticity Verification - [ ] Confirm the FDD bears a cover page with the required FTC disclosure statement - [ ] Verify the document is the **most current version** (check the issuance date — FDDs must be updated annually, within 120 days of the franchisor's fiscal year end) - [ ] Confirm the FDD has been registered or filed in your state if required ([STATE] may be a registration state — check with your state's franchise regulator) - [ ] Verify the franchisor has provided the FDD in the manner required (hard copy or electronic PDF/HTML) - [ ] Confirm receipt date and note your **earliest permissible signing date** (14 days from receipt): [DATE + 14 DAYS] ### 2.2 Professional Support Assembly - [ ] Engage a franchise attorney licensed in [STATE] to assist with review - [ ] Engage a CPA or financial advisor familiar with franchise financial modeling - [ ] Contact existing franchisees independently (see Item 20 contacts) - [ ] Research the brand independently via online reviews, news archives, and court records --- ## 3. FDD Items 1–5: Franchisor Background and Fees ### Item 1 — The Franchisor and Any Parents, Predecessors, and Affiliates - [ ] Review the full legal name and principal business address of the franchisor - [ ] Identify all parent companies, affiliates, and predecessor entities - [ ] Confirm the company's business history and how long it has been franchising - [ ] Verify the business description aligns with what you were told during sales presentations - [ ] **Red Flag Check:** Is the company very new to franchising (fewer than 2 years)? Does it have a history of name or ownership changes that obscure prior operations? **Notes:** _______________________________________________ ### Item 2 — Business Experience - [ ] Review the backgrounds of each executive, officer, and director listed - [ ] Assess relevant franchise and industry experience of the leadership team - [ ] Verify that key personnel have experience in franchisee support, operations, and training - [ ] **Red Flag Check:** Does the leadership team lack direct franchise management experience? Are there frequent changes in key personnel? **Notes:** _______________________________________________ ### Item 3 — Litigation - [ ] Read every disclosed litigation matter carefully - [ ] Identify any **pending lawsuits filed by franchisees** (these are especially significant) - [ ] Note any criminal convictions, civil fraud, or antitrust violations involving principals - [ ] Research court dockets in [STATE] and federal systems for any undisclosed matters - [ ] **Red Flag Check:** Multiple franchisee-initiated lawsuits alleging fraud, misrepresentation, or undisclosed material facts are serious warning signs **Notes:** _______________________________________________ ### Item 4 — Bankruptcy - [ ] Review any bankruptcy filings by the franchisor, its affiliates, or its principals within the last 10 years - [ ] Assess timing and circumstances of any disclosed bankruptcies - [ ] **Red Flag Check:** A recent or ongoing bankruptcy of the franchisor raises fundamental concerns about system stability **Notes:** _______________________________________________ ### Item 5 — Initial Fees - [ ] Record the initial franchise fee: $_______________ - [ ] Confirm whether the fee is refundable and under what conditions - [ ] Identify any additional initial fees (training fees, technology setup, territory deposit) - [ ] Confirm whether fees are uniform across all franchisees or negotiable - [ ] **Action Item:** Compare total initial fees to competitors in this franchise category **Notes:** _______________________________________________ --- ## 4. FDD Items 6–9: Ongoing Fees, Restrictions, and Territory ### Item 6 — Other Fees - [ ] Record the ongoing royalty rate: ______% of gross sales (or fixed fee: $_____/month) - [ ] Record the marketing/advertising fund contribution: ______% of gross sales - [ ] List all other recurring fees: - Technology/POS fee: $_______________ - Training fees for additional staff: $_______________ - Renewal fee: $_______________ - Transfer fee: $_______________ - Audit fee (if applicable): $_______________ - Other: $_______________ - [ ] Calculate the **total ongoing fee burden as a percentage of revenue** and assess viability against projected gross margins - [ ] **Red Flag Check:** Total fee burden exceeding 12–15% of gross sales may make profitability very difficult for lower-margin concepts **Notes:** _______________________________________________ ### Item 7 — Estimated Initial Investment - [ ] Review the full itemized Table 7 (the "Item 7 Table") - [ ] Record the **low and high range** of the total initial investment: $_____________ to $_____________ - [ ] Break down major cost categories: - Real estate / lease deposits: $_____________ - Leasehold improvements / construction: $_____________ - Equipment and fixtures: $_____________ - Opening inventory: $_____________ - Initial training expenses: $_____________ - Working capital (3 months): $_____________ - Additional funds (operating losses): $_____________ - [ ] Verify that working capital estimates are realistic for your local market in [STATE] - [ ] Independently validate construction/build-out estimates with a local contractor - [ ] **Red Flag Check:** Working capital and "additional funds" listed as very low amounts may indicate the franchisor is underestimating ramp-up time **Notes:** _______________________________________________ ### Item 8 — Restrictions on Sources of Products an