The safest route to franchise ownership is to treat it as an evidence exercise. Start with what you can afford and how you want to work. Then get the Franchise Disclosure Document (FDD) for each brand on your shortlist. Check its fees, turnover and litigation against what current and former franchisees tell you. Have a franchise attorney and an accountant review the agreement before you sign anything. A franchise consultant can help you build the shortlist, but most are paid commissions by the franchisors they recommend. Use them for introductions, not as independent advisors. In the US, federal law requires the franchisor to give you the FDD at least 14 calendar days before you sign or pay. From first enquiry to opening usually takes 3 to 9 months, depending on financing, site selection and build-out.
What does a franchise consultant actually do, and who pays them?
Most “franchise consultants” are brokers. They take a profile of your budget, skills and goals and match you to brands in their network. The franchisor pays them a referral fee when you sign. That fee is often a large share of the initial franchise fee, commonly in the tens of thousands of dollars per sale, so the service is “free” to you.
This creates two limits. You only see brands that pay the broker’s network, and the broker earns nothing if you decide not to buy. Ask any consultant which networks they belong to, how they’re paid and whether they’re paid more for some brands than others. Some registration states regulate franchise sellers and brokers. Your state regulator can tell you whether a broker must be registered.
True fee-only advisors exist and charge you directly, usually by the hour or a flat fee. They’re rarer, but they have no reason to push you toward a sale.
What should I check in the Franchise Disclosure Document?
The FDD format is set by the FTC’s Franchise Rule (16 CFR Part 436), so every US franchisor must use the same 23 numbered Items. These are the sections that tell you the most:
| Item | What it tells you | What to look for |
|---|---|---|
| 3 – Litigation | Lawsuits involving the franchisor and its executives | Repeated claims from franchisees, especially fraud or misrepresentation |
| 5 & 6 – Fees | Initial fee, royalties, ad fund, technology and renewal fees | Total ongoing fees as a percentage of sales, not just the royalty |
| 7 – Initial investment | Low-to-high estimate of total opening cost | Working capital that looks too small for a 6–12 month ramp-up |
| 19 – Financial performance | Revenue or profit figures (optional) | Whether it’s provided at all, sample size, and whether it shows median or only top performers |
| 20 – Outlets | Openings, transfers, terminations and closures over three years, plus franchisee contacts | High transfer or closure rates, and a list of former franchisees to call |
| 21 – Financial statements | Audited accounts of the franchisor | Revenue that depends on selling new units rather than royalties |
The FTC’s Consumer’s Guide to Buying a Franchise explains each Item in plain language. Item 20 is the most useful because it gives you names and phone numbers. Talk to at least five current and three former franchisees. Ask what they actually spent compared with the Item 7 estimate, and how long it took to break even.
What’s changed since 2023?
In July 2024, the FTC issued a policy statement warning franchisors that non-disparagement clauses can’t be used to stop franchisees from reporting problems to regulators. It also issued staff guidance saying fees not disclosed in the FDD may be unlawful. Former franchisees should be more willing to speak candidly than they were a few years ago. If a franchisor tries to limit what they can tell you, treat that as a warning sign. The FTC’s Franchise Rule page lists current guidance.
The Small Business Administration’s rules for franchise loans have also changed twice. The SBA dropped its franchise directory in 2023 and brought it back under rules that took effect in 2025. Check the current SBA Franchise Directory before assuming a brand qualifies for an SBA 7(a) loan. If the brand isn’t listed, closing can be delayed by weeks.
How do I know which states add extra protection?
Fourteen states require franchisors to register or file with a state regulator before selling there: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. Some of these state regulators publish franchisors’ filed FDDs online. That lets you read a brand’s FDD, and past years’ versions, before you contact the franchisor. The North American Securities Administrators Association coordinates franchise regulation across states and links to each regulator.
How much does marketing really cost a franchisee?
Most systems charge an ad fund contribution, typically 1–4% of gross sales. Many also require a minimum local marketing spend, and some require a grand-opening budget. As a production company, we see the same gap repeatedly. The franchisor’s national ad fund pays for brand advertising, but the franchisee pays for anything local, and local is where customers are won.
Before signing, check three things:
- Asset rights. Can you reuse the franchisor’s video and photo assets for your own paid social ads? Music and talent licences are often limited to the franchisor’s channels. A franchisee re-posting a brand ad on their own account can trigger a takedown or a licence claim.
- Approval workflow. Locally produced content usually needs brand approval. Turnaround ranges from 48 hours to several weeks, which matters for a grand opening or seasonal promotion.
- Realistic local budget. A short local video shoot (one location, half day, two or three edited cuts) typically runs from the low thousands to around $10,000, depending on crew size and usage rights. Make sure this sits inside your Item 7 working capital and isn’t an afterthought.
What usually goes wrong?
- Undercapitalisation. Owners budget to the low end of Item 7 and run out of cash before the unit breaks even.
- Territory overlap. “Protected” territories can still allow online sales, non-traditional sites (airports, stadiums) or a second brand owned by the same parent.
- Buying the trend. Young brands growing fast have few years of Item 20 data. That makes closure rates hard to judge.
- Skipping the lawyer. Franchise agreements are rarely negotiable on core terms. A franchise attorney can still spot personal guarantee scope, transfer restrictions and non-compete terms you’ll live with for 10 years or more.
The SBA’s guide to buying a franchise and the International Franchise Association are good starting points for financing and industry data. Bear in mind that the IFA represents franchisors as well as franchisees.
Next step: set a total investment ceiling that includes 6 to 12 months of working capital. Pick three brands within it, and get their most recent FDDs from the franchisor or a state regulator’s database. Call franchisees from each brand’s Item 20 list before you spend money on a discovery day, and hire a franchise attorney before the 14-day disclosure period runs out.
