7 Things to Know Before Buying a Franchise

The things that surprise franchise buyers most are almost all disclosed in the FDD — they just don’t get read closely enough. Before you sign, know that the franchise fee is the small number, that an absent Item 19 is telling you something, that “exclusive territory” often isn’t, and that the franchise agreement decides how — and how expensively — you can ever get out. Here are seven realities worth understanding before you commit.

1. The Franchise Fee Is the Smallest Check You’ll Write

The initial franchise fee gets quoted up front because it’s the most digestible number. The real cost is in Item 7 of the FDD — the estimated total investment — which adds build-out, equipment, signage, opening inventory, and working capital. Item 6 then lists the ongoing royalties and fees you’ll pay for the life of the agreement. Add Item 7’s high estimate to several months of operating losses before break-even, because that’s the money you actually need. Our guide to every franchise fee maps where each one hides.

2. Royalties Come Out of Sales, Not Profit

Royalties — commonly a percentage of gross sales — are charged on your revenue, not your earnings. You owe them in slow months and losing months alike, alongside an advertising-fund contribution that funds system marketing you don’t control. Model your business with those payments running from day one, not from the day you turn a profit.

3. A Blank Item 19 Is a Message

Item 19 is the only place a franchisor may state what its outlets earn, and disclosing it is optional. If the FDD includes one, the numbers must have a reasonable, documented basis. If it doesn’t, no one at the company is allowed to tell you projected earnings in any other way — so be wary of verbal “you’ll clear six figures” pitches. An empty Item 19 isn’t automatically a dealbreaker, but it shifts the work onto you. Read our guide to Item 19 for how to interpret what’s there and what’s missing.

4. Call the Franchisees Who Left

Item 20 lists current franchisees and, just as importantly, gives contact information for owners who have left the system in recent years. The franchisor will happily point you to its stars. The departed owners are where the candid information lives — ask why they left, what surprised them, and whether they’d do it again. A system with a long list of exits relative to its size deserves a hard look.

5. “Exclusive Territory” Often Isn’t

Item 12 defines your territory — and many agreements grant a “protected” area that still lets the franchisor sell online, through alternative channels, or to other formats inside your zone. Read exactly what is reserved to the franchisor before you assume your market is yours. A vague or narrow territory clause can put a second unit down the road from you, legally.

6. Some Terms Are Negotiable — Most Core Ones Aren’t

Established brands rarely move on royalties or core brand standards, partly because deviating from their standard deal raises consistency and disclosure concerns. But specifics — build-out timelines, a development schedule, the scope of a territory, sometimes a personal-guaranty carve-out — can be open, especially with newer or smaller systems. Know which battles are worth fighting before you start; see how negotiable a franchise agreement really is.

7. The Hardest Part Is Getting Out

Item 17 and the franchise agreement control renewal, transfer, termination, and post-term non-competes. Many buyers never read these until they want to sell or leave — and discover transfer fees, franchisor approval rights, a right of first refusal, and a non-compete that limits what they can do next. Understand the exit before you sign the entrance. Our overview of why a franchise agreement needs a legal review walks through the clauses that matter most.

The 14-Day Window Is Your Leverage

Federal law requires the franchisor to give you the FDD at least 14 calendar days before you sign or pay. That window is the one moment when you have full information and no obligation — the right time to read every item, make your Item 20 calls, and get professional review. Don’t let a “this deal expires Friday” pitch compress it.

Frequently Asked Questions

What’s the single biggest mistake franchise buyers make?

Underestimating the total cost and the difficulty of exiting. Both are disclosed — in Items 6, 7, and 17 — but get skimmed. Reading them closely before signing prevents most regret.

How much should I budget beyond the franchise fee?

Use Item 7’s high estimate plus several months of operating expenses to reach break-even. The initial fee is usually a small fraction of what it takes to open and stabilize the business.

Is buying a franchise safer than starting my own business?

A franchise gives you a tested system and brand, which can lower some risks, but it adds ongoing fees, strict standards, and limited control. “Safer” depends entirely on the specific system — which is what the FDD lets you evaluate.

Do I need a lawyer to buy a franchise?

You’re not required to have one, but an FDD and franchise agreement are long, dense, and written by the franchisor’s counsel. A focused review catches the costs and exit terms buyers most often miss.

The buyers who do well are the ones who treat the 14-day window as homework, not a formality. Reidel Law Firm reviews FDDs for prospective franchisees on a flat fee, with a written summary of the costs, territory, and exit terms in your specific deal — get your FDD reviewed before you sign.