Franchise Due Diligence Checklist

1. Screen and self-assess before you request the FDD

• Do an honest self-assessment of fit: can you run a business by someone else's system, or do you need to do things your own way?
• Rough-check your liquid capital and net worth against the brand's likely minimums before investing more time (brands commonly ask for a range of liquid capital that varies widely by industry). Confirm exact figures in Item 7.Confirm with a lender or CPA
• If you may use SBA financing, check the brand's current status on the SBA Franchise Directory now, since a brand that is not listed cuts off SBA-loan eligibility for its franchisees. Verify current status directly at sba.gov.Confirm with a lender or CPA
• Note whether the brand sells in an FDD-registration state, since state review can affect when the FDD is validly delivered and your clock starts. Confirm the current list for your state.

2. Obtain and read the complete FDD, and respect the waiting periods

• Request the full FDD with all exhibits and the franchise agreement attached, not a summary or excerpt.
• Record the exact delivery date in writing. Under the 14-day rule the franchisor cannot ask you to sign or pay anything until 14 calendar days have passed.
• Track the separate 7-day rule: the franchisor must give you a complete, ready-to-sign set of all agreements (blanks filled in) at least 7 calendar days before you sign or pay.
• Read Item 22 (list of related agreements) to map every document you will eventually be asked to sign.

3. Deep-dive the five focus items

• Item 3 (litigation): review pending and past suits involving the franchisor, affiliates, and named officers, and flag any pattern of suits with franchisees.
• Item 7 (initial investment): review the full expense table and model your budget off the high end of every range, not the low end.
• Item 19 (financial performance): if figures are provided, confirm whether they are historical or projected and which outlets they cover. If Item 19 is blank, no earnings claim, verbal or written, may legally be made, so treat any off-document earnings claim as a red flag.
• Item 20 (outlets and turnover): pull the three-year tables of openings, closures, transfers, terminations, and non-renewals, plus the list of franchisees who left last year, and investigate any local closures.
• Item 21 (financial statements): review the franchisor's audited financials to judge whether it can actually fund the support and growth it promises.

4. Validate by calling franchisees, current and former

• Pull the full franchisee contact list from Item 20, including everyone who exited last year. Do not rely only on names the franchisor refers you to.
• Call a broad, random cross-section across regions and tenure, not just a handful.
• Lead with the anchor question: 'With what you know today, would you still make this investment?'
• Ask about the actual weekly time commitment, the quality of franchisor support, how the marketing fund is spent, unexpected costs, any disputes with the franchisor, and whether territory protection has been honored.
• For former franchisees, ask the real reason they left, and cross-check everything against the Item 19 and Item 20 data.

5. Confirm financing readiness

Financing terms vary by lender, borrower, and brand. Every figure here is a general range to confirm with a licensed lender.

• Verify your liquid capital and net worth against the franchisor's stated minimums (often in Item 7).Confirm with a lender or CPA
• If using SBA financing, confirm the brand is currently on the SBA Franchise Directory and has completed the required certification.Confirm with a lender or CPA
• Check your personal credit and documentation readiness. SBA-backed franchise loans commonly look for a strong credit score, a few years of tax returns, and a business plan (exact requirements vary by lender).Confirm with a lender or CPA
• Confirm the cash equity injection your lender will require comes from verifiable personal funds. Get a pre-qualification letter before committing to a site or territory.Confirm with a lender or CPA

6. Verify site selection and territory

• Get the exact territory-definition method in writing (radius, drive-time, ZIP codes, custom polygon). Vague boundary language should make you pause.
• Confirm whether the franchisor retains rights to sell into your territory via online, ghost-kitchen, or third-party delivery channels despite 'exclusive' language.
• Run your own trade-area check (population, income, daytime population, target-customer presence) against the brand's best comparable locations. Do not rely solely on the franchisor's pick.
• Verify site availability, zoning, and who controls lease approval, and cross-reference Item 20 closure data for units near your proposed site.

7. Attend discovery day

• Schedule discovery day only after your FDD review and franchisee calls are substantially done, so your questions are targeted.
• Meet the executive and support team in person and tour the support infrastructure and at least one operating unit.
• Treat it as a mutual interview. Legitimate franchisors do not expect you to sign anything on discovery day itself.
• Bring a written list of open questions from your FDD review and franchisee calls, and get the answers on the record.

8. Have a franchise attorney review the agreement

• Retain an attorney who specifically practices franchise law. A general local attorney may miss the standard-versus-negotiable distinctions.Ask your attorney
• Have the attorney review the full FDD and every ancillary document (personal guaranty, lease addenda, technology agreements), not just the franchise agreement.Ask your attorney
• Have the attorney flag territory carve-outs, arbitration and venue clauses, transfer approval rights, guaranty and non-compete scope, termination triggers, and the operations-manual incorporation risk.Ask your attorney
• Ask the attorney which terms are genuinely negotiable versus standard across the industry. This step is legal advice and must be done by a licensed franchise attorney.Ask your attorney

9. Have an accountant review the numbers

• Have a CPA or financial advisor review the Item 21 audited financials for franchisor solvency and the Item 7 figures for realistic modeling.Confirm with a lender or CPA
• Build your own conservative pro forma (startup costs, working-capital runway, break-even timeline) using the high end of the FDD numbers plus your own local cost research.Confirm with a lender or CPA
• Review how royalty and marketing-fund fees will hit your margins, and the entity and tax-structure implications, with your own accountant.Confirm with a lender or CPA

10. Make the final go or no-go call

• Confirm every prior step is complete and documented: FDD review, the focus-item deep dive, franchisee calls, financing readiness, territory verification, discovery day, and attorney and accountant sign-off.
• Confirm both the 14-day and, where it applies, the 7-day waiting periods have fully elapsed from the correct documented delivery dates.
• Confirm no verbal representations were made outside Item 19 or the written FDD. Get anything additional added to the agreement in writing before signing.
• Make the go or no-go call as a distinct, dated decision. Do not let discovery-day momentum substitute for the completed checklist.
• Sign only the final, signature-ready versions your attorney reviewed, matching exactly what was delivered under the 7-day rule.