How this checklist works
This is a fixed list of 57 items in 11 sections, and it does no calculation and gives no score. The boxes are for your own tracking: the page does not save them, so print it or email yourself a copy before you leave. Items with an "Ask your attorney" tag turn on state law or on how a contract clause is read, which a checklist cannot decide for you. Most other items you can answer by reading the FDD and the agreement.
Most items point back to a specific part of the FDD, and the FTC'sFranchise Rule, 16 CFR 436.5 tells you what each part must contain. Item 6 must give the formula for any fee that can rise, or the maximum increase. Item 8 must say whether the franchisor or its affiliates earn revenue from the purchases it requires, and how much. Item 12 must state whether you get an exclusive territory, and if not it must say, in the rule's words, that you may face competition from other franchisees, from outlets the franchisor owns, or from other channels it controls. Item 17 is a table that cross-references renewal, termination, transfer and dispute-resolution terms to the agreement section that governs each. Item 20 reports outlet openings, terminations, non-renewals, reacquisitions and other closures for three years. When an item on the list does not match what the FDD says, that gap is the finding.
Worked example: reading Item 20 for closures
The numbers below are invented to show the arithmetic. They do not describe any real franchise system. The rule's Item 20 status table has columns for outlets at the start of the year, outlets opened, terminations, non-renewals, outlets reacquired by the franchisor, outlets that ceased operations for other reasons, and outlets at the end of the year. Add the four exit columns and divide by the start-of-year count.
- Year 1: 200 outlets at the start, 30 opened, exits 2 + 1 + 1 + 1 = 5. End: 225. Exits are 5 / 200 = 2.5% of the starting base.
- Year 2: 225 at the start, 20 opened, exits 6 + 4 + 3 + 6 = 19. End: 226. Exits are 19 / 225 = 8.4%.
- Year 3: 226 at the start, 12 opened, exits 9 + 7 + 4 + 10 = 30. End: 208. Exits are 30 / 226 = 13.3%.
Across the three years this system opened 62 outlets and lost 54, so the headline "62 new units" looks healthy. The trend is the finding: exits rose every year while openings fell, and the system shrank by 18 outlets in year 3. That does not prove anything about the brand, and a rise in closures can have causes unrelated to the franchisor. It tells you what to ask. The same Item 20 must list the contact details of current franchisees and of those who left in the last fiscal year, so call people from the exit columns and ask why they left.
Worked example: what a guaranty and a future-royalty clause can add up to
Suppose an agreement lets the franchisor claim royalties for the years left on the term if it terminates you, and suppose the royalty is 6% of gross sales. Those two figures are hypothetical. With annual sales of $450,000, one year of royalty is 0.06 × $450,000 = $27,000. With 7 years left on the term, the claim is 7 × $27,000 = $189,000, before fees, damages or legal costs. Whether such a clause is enforceable depends on the state and the facts, which is why the list sends it to an attorney. What you can do without one is compare that figure with what your guaranty covers. An unlimited guaranty puts your personal assets behind every dollar of it, and a capped one does not.
If you also borrow through the SBA's 7(a) program, expect a second guaranty. The SBA's lender manual,SOP 50 10 8.1 (effective October 1, 2026), says any individual with direct or indirect ownership of 20% or more of the applicant "must provide an unlimited full guaranty". It also says each spouse who owns less than 20% must guarantee in full when the combined ownership of both spouses and minor children is 20% or more. That is separate from any guaranty the franchisor asks for, so a buyer can end up signing both.
What the FTC has said about fees and gag clauses
The Franchise Rule sets a floor: you must receive the disclosure document at least 14 calendar days before you sign a binding agreement or make any payment to the franchisor or an affiliate in connection with the sale (16 CFR 436.2(a)), so a deposit counts as much as a signature. On July 12, 2024 the FTC and its staff released apolicy statement and guidance. The FTC said franchisor contract provisions, including non-disparagement clauses, that prohibit franchisees' communications with the government violate the law, and staff guidance said franchisors cannot lawfully impose and collect fees that were not previously disclosed. Put those two points to work on the checklist. On fees, check that every recurring or one-time fee the operations manual can add or raise appears in Item 6 with a formula or a maximum. On gag clauses, read any non-disparagement or confidentiality language for a carve-out that lets you speak to regulators. The press release is regulatory context, not a ruling on any clause in your agreement, so an attorney has to tell you what remedies your state allows.
One more point on earnings. The rule bars financial performance claims that are not in Item 19, with two narrow exceptions written into the Item 19 text: the franchisor may give you the actual records of an existing outlet you are considering buying, or a written supplement about possible performance at a particular location. A verbal "owners here usually make X" is neither (436.5(s),436.9(c)).
Sources retrieved September 29, 2026. Education only, not legal advice; take the full FDD and agreement to a franchise attorney licensed in your state.