Read the Whole FDD Before You Sign.
Every Item from fees to financials, what the fees cost at your own revenue figure, and how many franchisees have left the system, from a 400-page FDD in minutes.
Quick answer
What should I check in a Franchise Disclosure Document?
Start with Item 20: how many units opened, closed, were terminated or changed hands each year. Check Item 19 for any earnings information, and note if it is missing. Then add up Items 5 to 7, the initial fee, royalties, brand fund and other ongoing fees, at your own expected sales, and check the territory, renewal, transfer and post-term non-compete in the agreement.
Who this franchise review is for
- Anyone buying a first franchise unit
- Buyers of an existing franchised unit (a resale or transfer)
- Multi-unit and area developers
- Franchisees facing renewal on new terms
What's at stake
The Franchise clauses most people miss, and what they can cost you.
Item 20 shows how many franchisees left. Nobody does the maths.
The FDD lists every termination, non-renewal and closure as raw counts. We turn them into a yearly rate, so you can see whether units are leaving the system faster than they open.
No Item 19 means no earnings figures at all
Many franchisors disclose nothing about what units earn. We flag it and tell you exactly who to call instead: the current and former franchisees listed in the FDD.
6% plus 2% plus fees comes off the top of every sale
Enter your own revenue figure and see royalties, fund contributions and fixed fees for every year of the term, before rent, payroll or food costs.
What the franchise review checks
- Fees over the term at your own revenue figure
- Item 20 closure and turnover rates, year by year
- Item 19: earnings information, or none
- Territory carve-outs for online and delivery sales
- Required suppliers that pay the franchisor
- Renewal on then-current terms and required remodels
- Termination, liquidated damages and the non-compete
- Personal guaranties, including spouses
What you get
- Item 20 unit openings, closures and transfers, with rates calculated in code
- A flag if Item 19 gives no earnings information
- Fees over the term at your own sales estimate, never ours
- The FDD receipt date and the earliest date you can sign
How to review a franchise agreement
- 1
Upload the whole FDD
With its exhibits; the franchise agreement is usually one of them. 400 pages is fine: it is read in full and you get one report.
- 2
Say where you are in the process
A first unit, a resale, a multi-unit deal and a renewal carry different traps.
- 3
See what the FDD shows
Item 20 closure and transfer rates, whether Item 19 exists, and fees over the term at a sales figure you enter.
- 4
Call the franchisees
Questions to ask the franchisor and current and former owners, whose contacts Item 20 lists.
7 red flags in a franchise agreement
What the review looks for first, and why each one matters.
No Item 19 earnings information
You have to build your own estimate, and franchisee calls become essential.
High Item 20 closure or transfer rates
Many owners leaving the system is a signal to investigate.
No protected territory
The franchisor can place another unit, or sell online, next to you.
Renewal on the franchisor’s then-current terms
Royalties and obligations can change when you renew.
Liquidated damages for future royalties on early exit
Leaving can cost years of royalties you never earn.
A personal guaranty that includes your spouse
Household assets can be exposed.
A broad post-term non-compete
It can stop you working in the industry after you leave.
Franchise terms explained
- Franchise Disclosure Document (FDD)
- The disclosure document a franchisor must provide, in 23 Items, before a franchise is sold.
- FTC Franchise Rule
- The federal rule requiring the FDD to be given to a prospective franchisee at least 14 calendar days before they sign or pay.
- Item 19
- The optional financial performance representation: what, if anything, the franchisor discloses about unit sales or profits.
- Item 20
- Tables of outlets opened, closed, terminated, not renewed, reacquired and transferred over three years.
- Royalty
- An ongoing fee, usually a percentage of gross sales, paid to the franchisor.
- Brand or advertising fund
- A pooled marketing fund each franchisee contributes to, often as a percentage of sales.
- Protected territory
- An area in which the franchisor agrees not to place another unit, subject to the exceptions written in.
Why review it with ClauseAudit
Results in minutes
Most contracts are read in about a minute; very long documents are split, read in full and returned as one report.
Read for your state
Some states have franchise registration or relationship laws that add to the federal rule, and the FDD often includes state addenda. We show the general US position and tell you exactly what to confirm locally; we cite a state rule only once it has been checked against its source.
A fraction of a lawyer’s fee
From $19 a review. Take the report to an attorney and the conversation starts where it matters.
Plain English + a redline
Every risk explained, with a downloadable redline and a negotiation email.
One plan covers all eleven analyzers: Employment, Freelance, NDA, SaaS, Lease, Commercial Lease, Equipment & Vendor, MCA & Business Loan, Franchise, Business Purchase and Operating Agreement. Use your credits on any contract type.
Franchise contract FAQs
What should I check in a Franchise Disclosure Document?
+
Start with Item 20: how many units opened, closed, were terminated or changed hands each year. Check Item 19 for any earnings information, and note if it is missing. Then add up Items 5 to 7, the initial fee, royalties, brand fund and other ongoing fees, at your own expected sales, and check the territory, renewal, transfer and post-term non-compete in the agreement.
Can you really read a 400-page FDD?
+
Yes. Upload the whole FDD with its exhibits, up to 1,200 pages. It is read in full and you get one report, with each finding pointing to the Item and page it came from.
What does it mean if there is no Item 19?
+
The franchisor has chosen not to disclose any earnings figures, which is lawful but leaves you without the most important number. The best substitute is the franchisees themselves: the FDD lists current and former owners in Item 20, and we tell you what to ask them.
How do you work out the fees?
+
From Items 5 to 7, in code, against a yearly revenue figure you enter yourself. We never estimate your revenue. You see the royalty, fund and fixed fees for each year of the term, and what share of your sales they take.
Is this a substitute for a franchise attorney?
+
No. It is a fast, complete first read so you arrive at the attorney, and at calls with franchisees, knowing exactly what to ask. It is not legal or investment advice.
Can you estimate how much a franchise will earn?
+
No, and we never estimate your revenue. You enter a sales figure and we show what the fees would be at that figure. Your best sources for revenue are Item 19, if provided, and the current and former franchisees listed in Item 20.
How long is an FDD, and can you read all of it?
+
FDDs commonly run to hundreds of pages with exhibits. The whole document is split, read in full and combined into one report, billed by pages.
Related reviews
Commercial Lease review
Tenant-side review of a commercial lease: the guaranty, the CAM, the exit, and the total over the full term.
MCA & Business Loan review
What you actually receive, what you repay, the estimated APR the agreement leaves out, and the clauses that can take your account or your house.
Business Purchase review
Where the price really goes, what the seller note costs, what can be claimed after closing and for how long, read from your side of the deal.
Check your franchise agreement before you sign
Upload it, choose your options and get the report. One plan covers all eleven analyzers.
Review my FDDWritten and maintained by the ClauseAudit team. Last reviewed . General information, not legal advice, and not reviewed by an attorney. For a high-stakes agreement, consult a qualified attorney.
Have an FDD to check? Upload the whole thing with its exhibits. 400 pages is fine.
Review my FDDThe same documents, read for where you stand
A first unit, an existing unit, a multi-unit deal and a renewal carry different traps. We run19 checks across every FDD Item and weight them for where you are. We describe what the documents say and what they cost; we never tell you whether to invest.
Opening a new franchise
Your first unit with this brand, from the FDD and franchise agreement
- The real cost over the term once royalties and fund fees are counted
- Whether the franchisor shares any earnings figures at all (Item 19)
- How many units have closed or left the system (Item 20)
Buying an existing franchise
Taking over a unit from a current franchisee (a transfer)
- How much of the term is left, and what renewal will require
- Transfer fees, training costs and a new agreement on current terms
- Remodel or upgrade obligations triggered by the sale
Multi-unit or area development
Committing to open several units on a schedule
- A development schedule you must meet or lose the territory
- Cross-default: trouble at one unit puts every unit at risk
- Development fees paid up front and not refunded
Renewing your franchise
Signing a renewal or the franchisor’s current agreement
- A new agreement on the franchisor’s current, often higher, terms
- Renewal fees and required remodels
- A general release of claims as a condition of renewal