Franchise Disclosure Document (FDD) Filings: What Buyers Need to Know
Every franchisor offering franchises in the United States must provide prospective buyers with a Franchise Disclosure Document before any agreement is signed or money changes hands. This federal requirement, enforced by the FTC under the Franchise Rule, creates a rich public record of franchise investment data across thousands of brands.
What an FDD Contains
Each FDD follows a standardized 23-item format mandated by the FTC:
| Item | Disclosure | Why It Matters |
|---|---|---|
| Item 5 | Initial Fees | Total upfront cost to enter the system |
| Item 6 | Other Fees | Ongoing royalties, ad fund, technology fees |
| Item 7 | Estimated Initial Investment | Full startup cost range including build-out |
| Item 19 | Financial Performance Representations | Revenue/profit data (if franchisor chooses to disclose) |
| Item 20 | Outlets and Franchisee Information | Unit growth, closures, and turnover rates |
State Registration and Public Access
While the FTC requires all franchisors to prepare an FDD, 15 states go further by requiring franchisors to register before selling. In 13 of those states, FDD filings become public record. Four states offer free online access to filed FDDs:
- California
- Filed through the Department of Financial Protection and Innovation (DFPI)
- Minnesota
- Available via the Department of Commerce
- Wisconsin
- Accessible through the Department of Financial Institutions
- Indiana
- Filed with the Securities Division
The NASAA Electronic Filing Depository provides a centralized submission system, though not all states participate.
Key Metrics for Franchise Evaluation
Experienced franchise consultants focus on several critical data points within FDD filings:
- Item 19 disclosure rate — Only about 60% of franchisors include financial performance data. Absence can signal reluctance to share unit economics.
- Item 20 unit turnover — Net unit growth minus closures and transfers reveals system health better than headline expansion numbers.
- Litigation trends (Item 3) — Patterns in franchisee lawsuits often indicate systemic issues with support, territory, or earnings claims.
- Fee escalation clastrong> — Comparing FDDs across filing years reveals how royalties, technology fees, and ad fund contributions trend over time.