read-the-fdd

name

read-the-fdd

description

A decision-focused read of a Franchise Disclosure Document: what the key Items mean for a buy decision — fees (Items 5-6), total investment (7), restrictions & territory (8/11/12), the Item 19 FPR's scope/cohort/exclusions, and turnover/litigation/bankruptcy (3/4/20) — as franchisee literacy, explicitly NOT legal advice (binding review -> legal-ops-clm). Reach for it when someone hands you an FDD. Used by `franchise-operations-strategist` (primary).

Skill: read-the-fdd

Invoked by: franchise-operations-strategist (primary). Binding review of the franchise agreement — what's enforceable, what to negotiate — routes to legal-ops-clm. This skill is literacy, not legal advice.

When to invoke: evaluating an FDD before signing, or making sense of Item 19.

Output: a decision-focused summary of the key Items + the questions to take to counsel. Specifics carry a retrieval date + [verify-at-use] (FDDs are edition- and state-specific).

Procedure

1. Start with the money Items (5, 6, 7). Item 5 = initial fees; Item 6 = the ongoing fees (royalty, ad fund, other) that load your unit model; Item 7 = the estimated total initial investment range. Pull these into ../model-unit-economics/SKILL.md.
2. Read Item 19 for what it excludes. A Financial Performance Representation is optional and selected: which units are in the cohort (company vs franchised, tenure, geography), average vs median, gross-vs-net, and the footnotes on what's excluded. A high average with a small top-quartile cohort tells you little about your unit. If there's no Item 19, the franchisor isn't disclosing performance — a signal in itself.
3. Map the restrictions (Items 8, 11, 12). Item 8 = required purchases/approved suppliers (a margin and sometimes rebate-to-franchisor issue); Item 11 = franchisor obligations, training, systems; Item 12 = territory — is it protected/exclusive, and can the franchisor open nearby or sell online into it?
4. Read the risk Items (3, 4, 20). Item 3 = litigation; Item 4 = bankruptcy; Item 20 = the outlet tables — openings vs closures vs transfers over the last three years. A high closure/transfer rate is the single most telling number in the document.
5. Note the agreement terms for counsel (Item 17). Term/renewal, termination, transfer, non-compete, dispute resolution/venue. Flag these; do not opine on enforceability — that's legal-ops-clm.
6. Produce the decision summary + the counsel list. What the FDD says for the go/no-go, and the specific clauses to have a franchise attorney review.

Worked example

Item 20 shows 40 openings, 28 closures, 15 transfers over 3 years.

• Read → net unit growth is thin and churn is high (closures + transfers ≈ the openings). Ask why: market, economics, or franchisor support?
• Item 19 → average AUV cited, but cohort = "franchised units open ≥2 years" (excludes the strugglers that closed) → survivorship-biased; discount it.
• Counsel list → territory (Item 12) exclusivity + termination (Item 17) → to legal-ops-clm.

Guardrails

• This is literacy, not legal advice — enforceability, negotiation, and signing route to legal-ops-clm.
• Item 19 is a disclosure, not a projection — read the cohort and exclusions; build your own model.
• Item 20 churn is the tell — closures and transfers over openings often say more than the FPR.
• FDDs are edition- and state-specific — verify against the current document.