Item 5 — Initial fees
Every upfront payment the franchisor collects, decoded so you can compare across brands.
The Franchise Disclosure Document
All 23 FDD items, decoded.
Plain-English explanations of what each numbered item requires the franchisor to disclose, why it matters to a prospective franchisee, and what to look for. We translate; the FDD remains the source of truth.
What we surface
The FDD items prospective franchisees cite most
The FTC’s Franchise Disclosure Document has 23 numbered items. We focus on the six that prospective franchisees cite most — and we flag when a franchisor leaves the most important one (Item 19) blank.
Item 6 — Ongoing royalties
Royalty rates, marketing fund contributions, technology fees, and how they compound.
Item 7 — Initial investment
The full estimated cost range to open, broken into realistic line items.
Item 19 — Earnings claims
When franchisors do provide earnings data, we translate the numbers — and flag when they don't.
Item 20 — Outlet counts
Openings, closings, and transfers over the past three years — a critical read for any brand.
Litigation & dispute history
Material lawsuits, bankruptcy, and trademark disputes disclosed in the FDD.
Item-by-item
Plain-English explanations
Each note below describes what the item asks the franchisor to disclose, why it matters, and what to look for when you read it.
Item 5 — Initial fees
What it asks the franchisor to disclose: every one-time fee a new franchisee must pay before opening — the initial franchise fee, training fees, opening marketing spend, and any required technology or software purchase.
Why it matters: Item 5 is the headline number most prospects see first, but it is rarely the biggest cost. The full investment picture lives in Item 7.
What to look for: any line labeled "initial" that is non-refundable, and any required purchase from the franchisor or its affiliates at a stated (rather than market) price.
Item 6 — Other (ongoing) fees
What it asks the franchisor to disclose: recurring fees paid to the franchisor after the unit opens — the royalty, the marketing or brand-fund contribution, technology fees, and any other ongoing charge.
Why it matters: ongoing fees continue whether or not your outlet is profitable, and they compound with sales volume. A 6% royalty is very different at $400K in annual sales than at $1.2M.
What to look for: whether the royalty is a flat percentage or a tiered structure that escalates, whether the marketing fund is mandatory or optional, and whether technology fees are fixed or pegged to sales.
Item 7 — Estimated initial investment
What it asks the franchisor to disclose: a low-high range for the total capital required to open — broken out by line item (real estate, build-out, equipment, inventory, training, opening marketing, working capital).
Why it matters: Item 7 is the closest thing the FDD has to a true cost-to-open number. It is also the item most often under-estimated in practice.
What to look for: whether the range is realistic for your market, how much of the high end is "additional funds" (working capital) versus hard costs, and whether the figure includes any required land or building purchase.
Item 19 — Financial performance representation (earnings claims)
What it asks the franchisor to disclose: if the franchisor chooses to provide earnings data, Item 19 is where it appears — typically as averages, medians, or ranges from a sample of reporting outlets.
Why it matters: Item 19 is optional. A franchisor is not required to provide an earnings claim, and many do not. If your FDD’s Item 19 is missing, the franchisor is making no financial performance representation, and any earnings figure you encounter elsewhere is not the franchisor’s claim.
What to look for: whether the data is drawn from a small or large sample, whether high-performers are excluded, whether the figures are presented as gross sales (not profit), and whether the franchisor has included the FTC’s prescribed disclaimer language verbatim.
Item 20 — Outlets and outlet counts
What it asks the franchisor to disclose: how many franchised and company-owned outlets opened, closed, were transferred, or were terminated in each of the past three fiscal years, broken out by state.
Why it matters: outlet counts are a critical read on system health. A brand with steady openings and few closures looks very different from a brand with closures outpacing openings in mature markets.
What to look for: the ratio of closures to openings (especially in year three), the concentration of units in a single state, and whether the franchisor distinguishes "voluntary" from "involuntary" terminations.
Item 3 — Litigation, bankruptcy, and dispute history
What it asks the franchisor to disclose: certain material lawsuits, franchisee-initiated litigation, bankruptcies involving the franchisor and its parents, affiliates, and predecessors, plus any trademark or other material disputes.
Why it matters: Item 3 surfaces disputes the franchisor would otherwise prefer you not see. Patterns of franchisee-side litigation or recent corporate restructuring are red flags worth investigating further.
What to look for: the volume of cases, whether settled cases are still required to be disclosed, and the named plaintiffs or classes (a brand with multiple franchisee-side class actions warrants extra scrutiny).