How to Choose a Franchise: 8 Steps from Self-Assessment to Signing
Short answer: To choose a franchise, match a category to your skills, cash and time; shortlist three to five brands; compare their FDDs, especially Items 7, 19, 20 and 21; call current and former franchisees from Item 20; confirm financing; and have a franchise attorney review the agreement before you sign.
Choosing a franchise is a selection process that moves from you to the market to one brand. Most buying mistakes happen when the order is reversed: a buyer falls for a brand first and builds the justification afterward. The 8 steps below keep the order straight and point to the FDD Item that answers each question.
What should you decide before looking at franchise brands?
Before looking at franchise brands, decide three things: how much cash you can invest without risking your household, how many hours a week you will work in the business, and which kind of work you are good at (selling, managing people, operating equipment, serving customers). These answers remove most of the market before you read a single FDD.
What are the 8 steps to choose a franchise?
The 8 steps to choose a franchise are:
- Assess yourself. Write down skills, preferred work, available hours and the role you want: owner-operator, semi-absentee or multi-unit.
- Set the budget. Separate cash you can invest from the financing you can qualify for. Your budget must cover the whole initial investment plus working capital, not only the franchise fee.
- Pick one or two categories. Use the franchise categories to match daily work to your profile.
- Shortlist three to five brands. Request each brand’s FDD and note where it sells, how many units it has and how long it has franchised.
- Compare FDDs side by side. Read Items 5 to 7 for cost, Item 19 for performance data, Item 20 for openings, closures and transfers, and Item 21 for the franchisor’s financial health.
- Call franchisees. Contact current and former owners listed in Item 20. Former owners explain why they left.
- Confirm financing. Talk to lenders before you commit, using the brand’s Item 7 range as the base of your plan.
- Review with professionals and sign only after 14 days. A franchise attorney reviews the agreement and an accountant reviews your projections. The FTC Franchise Rule requires that you receive the FDD at least 14 calendar days before signing a binding agreement or paying any money.
Which FDD Items matter most when choosing a franchise?
The FDD Items that matter most when choosing a franchise are Item 7 (estimated initial investment), Item 19 (financial performance representations), Item 20 (outlets and franchisee information) and Item 21 (financial statements). Together they answer four questions: what it costs, what units earn, whether the system is growing or shrinking, and whether the franchisor can support you.
| Question | FDD Item | What to look for |
|---|---|---|
| What will it cost to open? | Item 7 | Full range, working capital line, items paid to the franchisor |
| What do units earn? | Item 19 | Which units are included and what is excluded |
| Is the system healthy? | Item 20 | Openings versus closures, terminations and transfers |
| Is the franchisor stable? | Item 21 | Audited financials, dependence on new franchise fees |
| Is there a dispute history? | Item 3 | Patterns of franchisee lawsuits |
The full Item list is in the FDD guide.
What are the warning signs when evaluating a franchise?
The main warning signs when evaluating a franchise are pressure to sign before the 14-day review period ends, earnings claims that do not appear in Item 19, many closures or transfers in Item 20, a franchisor whose income depends mostly on selling new franchises, and current franchisees who refuse to talk or who describe broken promises.
One warning sign is not always a deal breaker. A pattern of them is.
How does a franchise consultant help you choose?
A franchise consultant helps you choose by narrowing the market to brands that fit your profile and introducing you to their franchise development teams. The FTC’s Consumer’s Guide notes that franchise brokers often work for franchisors and are paid only if a sale is made, so ask each consultant who pays them, how the payment is calculated and how many franchisors they represent.
SelectFranchiseList explains its own role on the page how we work: when you request a consultation, a SelectFranchiseList franchise advisor contacts you first.
Frequently asked questions
What questions should I ask current franchisees?
Ask current franchisees how long it took to break even, whether the Item 7 investment estimate matched their real costs, how useful the training and support are, how royalties compare with the support received, and whether they would buy the franchise again.
Should I trust earnings claims made by a franchise salesperson?
Earnings figures belong in FDD Item 19. Treat any earnings claim that does not appear in Item 19 as a warning sign and ask the franchisor to show where it is disclosed.
Do I need a franchise attorney to buy a franchise?
A franchise attorney is not legally required. The FTC's Consumer's Guide to Buying a Franchise suggests talking to an accountant and to a lawyer experienced in franchise matters, because the franchise agreement controls fees, territory, renewal and termination for years.
Related guides
Sources
This guide is general information, not legal, tax or investment advice. Franchise laws change and apply differently to each business. Review any franchise decision with a franchise attorney and an accountant.