The Federal Trade Commission requires disclosure of certain items by law in the franchise document or FDD.  This can be a bit tricky for franchise restaurant owners to intepret however.  Here are some examples.

Franchise buyers who are getting involved with purchasing a franchise for the first time can be broadsided by Item 7 of the Franchise Disclosure Document which requires a statement of working capital needs.  This is known as “Additional Funds” but it is only for a period of three months.  It make take up to two years to break even where your revenue costs equal the costs of selling your product. Meanwhile additional funds will be provided out of your own pocket. For this reason, it is necessary to review the initial build out plus the additional funds estimate and then weigh this against operating in the red for your first two years in the business and not rely on this estimate for your real capital needs. 

According to the laws set forth by the Federal Trade Commission, disclosing financial performance disclosure is optional for the current owner of the franchise. If the owner opts to include financial information you can locate it in Item 19 of the Franchise Disclosure Document under “Financial Performance Representations.”

The fact that the disclosure of financial information is optional would make any franchise restaurant buyer wonder why they are investing the money to purchase a franchise when they have no idea what their return on investment will be. Less than 15 percent of all franchise owners disclose financial information.

Information on the current performance of the franchise is conveniently missing from the Franchise Disclosure Document although the name of the current franchise owner is included in Item 20 of the Franchise Disclosure Document.

Another tricky piece missing from the Franchise Disclosure Documents are statistics on the rate of turnover in franchise ownership. The number of open and closed units are all that are required on the documents.  This may mean franchise restaurants have flipped two or three times but because they are "open" units, the re-sales are not captured.

When reading the franchise disclosure document on a restaurant, be curious, ask questions and make sure you understand the data you have been provided in the document.