I’ve reviewed hundreds of franchise disclosure documents (FDDs) over the last decade. Most buyers spend their time on the wrong sections. They read the cover. They skim Item 7 (the financial performance representation). They ask about total investment. They check the brand’s Instagram followers.
Then they sign.
Five years later, half of them are happy. The other half call me wondering what they missed.
Here’s what the unhappy half has in common: they didn’t ask the right questions before they signed. The questions that predict five-year success aren’t in the FDD’s first 20 pages. They’re in the structure of the deal itself.
Here are the seven I always ask, in the order I ask them.
1. “Where is the real ceiling on this territory?”
Item 19 in the FDD lists current unit locations and “scheduled” future units. This is the single most under-read section of the document. You want to know:
- How many units can the brand actually support in your metro?
- Where are the open territories, and how long have they been open?
- What is the historical resell rate for units in your area?
A territory that’s been “available” for two years is a red flag — either the brand has over-saturated the market or the territory is structurally weak.
2. “What does Item 7 actually say — and what doesn’t it say?”
Item 7 is the franchisor’s representation of unit economics. It’s legal disclosure, not a projection. The brands you should buy will have audited Item 7 statements. The brands you should avoid have Item 7 statements that disclose everything except median unit performance, or that disclose only the top quartile.
The right question to ask: “What is the median unit’s gross revenue, year three?” If they can’t or won’t tell you, that’s the answer.
3. “What does the franchisee turnover look like?”
The Franchise Disclosure Document lists terminated, non-renewed, and reacquired franchises. A brand with 5% annual franchisee turnover is healthy. A brand with 15%+ annual turnover is in trouble — usually because the economics don’t work for the operator.
Don’t be sold on the brand’s success metrics. Be skeptical of the operator-level churn. Those are different stories.
4. “What is the realistic 24-month ramp?”
Every franchisor will show you their “average” ramp curve. None of those match what you’ll actually experience.
The right question: “What did your last three new franchisees in markets like mine actually do in months 1-24, month by month?” If they can show you three operator-level ramps, the brand is honest. If they can’t, they’re hiding the variance.
A 24-month ramp that ranges from $400K to $1.2M year-one revenue is normal variance. A ramp that ranges from $800K to $1.2M is suspiciously tight — usually because the lower performers got filtered out.
5. “What does the corporate team actually do day-to-day?”
The pitch deck will tell you what the brand does for franchisees. The right question is what they don’t tell you about.
- How many corporate employees per franchisee?
- What’s the corporate-to-franchisee ratio, and how has it changed over 5 years?
- What’s the average tenure of regional managers?
A lean corporate team with low franchisee ratio means you’ll get less support. A bloated corporate team with high franchisee ratio means the brand is over-charging royalties. The right ratio is somewhere between 1:25 and 1:50 for most mature brands.
6. “Can I talk to three franchisees who opened in the last 18 months AND three who opened 5+ years ago?”
The brand will offer you references. They’ll be cherry-picked. Insist on this specific mix:
- Three franchisees who opened 18 months ago or less — they’ll tell you what the actual first-year experience is like.
- Three franchisees who opened 5+ years ago — they’ll tell you what year three, four, and five actually look like.
If the brand won’t let you talk to either group, that’s information.
7. “What would you tell me not to do?”
This is the question most buyers don’t ask, and it’s the one that gets the most honest answers. Every franchisor has seen buyers fail in predictable ways. Asking “what would you tell me not to do” forces them to share the failure patterns they’ve watched.
Common answers from honest brands:
- “Don’t try to skip training because you have industry experience.”
- “Don’t undercapitalize by 30% — you’ll run out of cash at month 14.”
- “Don’t hire your spouse as your first GM.”
- “Don’t open in December — first 90 days matter and you want to start in Q1.”
The brands that won’t answer this question are the brands you don’t want.
The question behind the questions
All seven of these are really asking the same thing: does this brand have integrity?
You’ll find out by the answers you get. Honest answers, even uncomfortable ones, are a green flag. Evasive answers, polished pitches, or “let me get back to you on that” responses are a red flag. The brand that handles these questions well is the brand that will handle the harder questions you’ll face as an operator.
If you’re three to six months from signing and want a second pair of eyes on the FDD, book a 30-minute FDD review. I’ll tell you what I see.