A Consumer's Guide to Buying a Franchise
by Federal Trade Commission · Federal Trade Commission
This is the neutral, regulator-written starting point for anyone evaluating a franchise, and the rest of the field (state regulators, the IFA) reposts it. The Federal Trade Commission's guide for prospective franchisees. It explains franchise fees, royalties and franchisor controls, how to screen opportunities, what each of the 23 items of the Franchise Disclosure Document means, and how to test earnings claims before signing.
More resources on Franchising
Minnesota CARDS Franchise Registration Search
Reading actual FDDs, including several years of one brand to spot closures and transfers, is the most useful due-diligence practice and the only one that bypasses sellers' marketing. The Minnesota Department of Commerce's free public database of franchise registration filings. It holds full Franchise Disclosure Documents from the past ten years, so readers can compare real Item 7 costs, Item 19 earnings claims and Item 20 outlet closures across brands.
Fundamentals of Franchising (Fourth Edition)
The American Bar Association Forum on Franchising's primer on franchise law. It covers the definition of a franchise, federal and state disclosure and registration, franchise agreement terms, relationship and termination laws, trademarks, antitrust and international franchising. How franchise agreements work is a core part and this is the neutral legal reference on agreement terms and state relationship laws, written for lawyers rather than for selling franchises.
Incentive Contracting and the Franchise Decision
An NBER working paper that surveys the theory and evidence on why firms franchise some outlets and own others, and how royalty rates and franchise fees are set. It compares principal-agent predictions with the empirical studies.
The Economics of Franchising
An economic analysis of how franchise systems work, drawing on extensive empirical data. It covers franchise contracts, royalty and fee structures, vertical restraints, quality control, tying, encroachment, advertising funds, termination, and the recurring conflicts between franchisors and franchisees. The chapters on encroachment, tying and termination explain the structural reasons franchisee disputes happen.
Franchise Rule Compliance Guide
The FTC staff's official explanation of the amended Franchise Rule (16 CFR Part 436). It goes through what franchisors must disclose in each FDD item, with sample disclosures, exemptions, timing rules and the rules on financial performance representations.