Buying a franchise is a major commitment. Federal rules require franchisors to give you a Franchise Disclosure Document at least 14 days before you sign or pay.
What to review in the FDD
- Initial fees and ongoing royalties.
- Required purchases from approved suppliers.
- Litigation and bankruptcy history of the franchisor.
- Financial performance information, if provided.
- Territory rights and renewal terms.
- Contacts for current and former franchisees.
Red flags
- Pressure to sign quickly.
- Unrealistic earnings claims outside the FDD.
- High turnover or many lawsuits.
- Weak support or training.
- Unclear termination and transfer rules.
Steps before you sign
- Talk to current and former franchisees.
- Have a franchise attorney review the agreement.
- Have an accountant evaluate the financial projections.
- Check state franchise registration and complaints.
- Understand non-compete and exit terms.
After signing
Franchise agreements can be difficult to exit. Keep records and follow operating standards carefully to avoid default.
Frequently asked questions
Can I negotiate a franchise agreement?
Terms are often standard, but some points can be negotiated.
What is the 14-day rule?
The franchisor must provide the FDD at least 14 calendar days before you sign or pay.