BiggerPockets Money Podcast · Tuesday, September 8, 2026
When evaluating a franchise, Alex Sarnack advises looking for red flags in the Franchise Disclosure Document (FDD), particularly Item 20 which lists current and former franchisees, noting a high number of former franchisees could signal dissatisfaction. During validation calls, listen for consistent concerns, hesitancy in answering questions about profitability, and the franchisor's responsiveness.
“In the FDD, you'll want to look at Item 19, which is the financial performance representations. Now, not all franchisors provide this, but if they do, you want to see if the numbers they're presenting align with your expectations. Are they realistic? Are they achievable?”
“Also, look at Item 20, which lists all current and former franchisees. If there's a high number of former franchisees listed, especially in the last few years, that could indicate dissatisfaction or difficulty in the system.”
“During franchisee validation calls, ask direct questions. Don't be shy. Ask about the actual profitability. Did they meet the projections in Item 19? What are their biggest challenges? What's their relationship with the franchisor like?”