Questions to Ask Before You Buy a Franchise

A franchisor is legally required to give you a Franchise Disclosure Document (FDD) at least 14 days before you sign anything or pay any money. Read Item 19 (Financial Performance Representations) and Item 20 (outlets opened, closed, and transferred) before your first call. If Item 19 is blank or vague, that is not normal caution—it is a choice. Franchisors who provide detailed, audited unit-level earnings data have nothing to hide; those who don't usually have a reason.

FranchiseValidate publishes transparency grades based entirely on public FDD filings. Before any validation call, check the brand's grade and read the Item 19 summary on the brand page. If it appears on /rankings/least-transparent, treat every earnings claim made verbally with serious skepticism.

These questions are direct. A good franchisor will answer them without hesitation. Evasiveness is data.

• What percentage of franchisees hit the earnings figures in Item 19—and what percentage didn't make it to year three? Ask for the number, not a story.
• What is the median owner-operator net income after royalties, fees, and debt service? Revenue figures without cost context are marketing, not information.
• How many units closed or were transferred in the last 24 months, and why? Item 20 shows the count; you need the reasons.
• What is the total investment range for franchisees who opened in the last two years—not the FDD estimate? Construction costs and equipment prices change; older estimates mislead.
• Do you allow franchisees to speak with former owners who left unhappily? Yes or no. A no tells you something.
• What territorial rights do I have, and can you open a company-owned location or sell a competing brand inside my territory? Read Item 12 carefully before accepting their answer.

The franchisor will give you a validation list. Call every name on it, but also pull the full franchisee contact list from Item 20 and call people who weren't referred to you. Ask the same questions of both groups and compare the answers.

• What did you actually spend to open, all-in?
• What were your gross sales and your take-home in year one versus now?
• How many hours a week do you personally work in the business?
• If you knew then what you know now, would you buy again—and would you buy this specific franchise or a different one?
• Has the franchisor ever changed royalty rates, required vendors, or territory rules after you signed?
• When you have a serious problem, does the franchisor actually solve it?

You are looking for consistency. If the referred owners sound rehearsed and the non-referred owners tell a different story, weight the non-referred answers more heavily.

Former owners are the most valuable and most ignored source in franchise due diligence. Item 20 lists contact information for franchisees who left the system in the last fiscal year. Call them. Many will talk.

• Why did you leave—your real reason, not the official one?
• Did you make money? If not, what was the primary financial drain?
• Was there anything in the FDD or franchise agreement that turned out to mean something very different in practice?
• If you had a dispute with the franchisor, how was it handled?
• Would you warn someone away from this brand? Why or why not?

A single bad exit can be an outlier. Multiple former owners describing the same specific problem—a required vendor with inflated prices, a marketing fund with no accountability, a renewal clause that reset terms—is a pattern you should take seriously.

These are not yellow flags. If you encounter them, the burden of proof to continue is on the franchisor, not on you.

• Item 19 contains only gross revenue, no expense or net income data. You cannot evaluate an investment without knowing what it costs to run the business.
• The franchisee contact list is unusually short or contains mostly multi-unit operators. Multi-unit owners often have different economics and different leverage than single-unit buyers.
• High transfer or termination rates in Item 20 with no clear explanation. Check /rankings/least-transparent to see how the brand's disclosure compares to peers.
• Pressure to sign before your 14-day review period ends, or before you've completed validation calls. Legitimate franchisors do not do this.
• Verbal earnings claims that exceed or contradict Item 19. Oral representations are unenforceable and exist to close deals.
• A franchise agreement that prohibits you from talking to the media or joining a franchisee association. These clauses suppress exactly the information you need.
• The brand's litigation history in Item 3 includes multiple suits by franchisees alleging fraud or misrepresentation. One lawsuit can be frivolous. A pattern is not.

Royalty rates are quoted as a percentage of gross revenue, which makes them sound small. On a business with thin margins, a 6% royalty plus a 2% marketing fund takes 8% off the top before you pay rent, labor, or cost of goods. Ask franchisors and current owners for a realistic P&L model built on actual unit economics—not a pro forma the franchisor prepared.

If you are comparing franchise costs across brands, the /rankings/cheapest page on FranchiseValidate lists low total-investment franchises alongside their transparency grades, so you can see whether the affordable entry point comes with honest earnings disclosure or not. Low cost and low transparency together is a common and dangerous combination.

FranchiseValidate assigns each brand a transparency grade based on how completely and honestly its FDD Item 19 represents unit-level financial performance—using only public filings, no brand payments, no sponsored content. An A grade means the brand discloses detailed, representative net income data. An F means it discloses little or nothing useful. The grade does not tell you whether a franchise is profitable; it tells you whether the franchisor gives you the information to find out.

Use the grade as a filter, not a final answer. A highly transparent brand can still be a poor investment in your market. A less transparent brand may still have franchisees willing to share real numbers on validation calls. But a low grade should raise your standard of evidence—you will need to work harder to get the financial picture the FDD should have provided.

• You have read the entire FDD, not just Item 19.
• You have spoken with at least 10 current franchisees, including some not on the referral list.
• You have spoken with at least 3 former franchisees from Item 20.
• You have a written, itemized total investment estimate from a franchisee who opened recently—not just the FDD range.
• You have had a franchise attorney (not one recommended by the franchisor) review the franchise agreement.
• You have built a conservative cash-flow model using actual franchisee-reported numbers, not franchisor projections.
• You can sustain 12 months of personal expenses without drawing income from the business.
• You have checked the brand's FranchiseValidate grade and read any red flags flagged in the disclosure analysis.