The Best Due Diligence Tool in the FDD Nobody Uses

Item 20 of every Franchise Disclosure Document contains the names and phone numbers of every franchisee in the system. Most buyers never call them. Here's why you should — and exactly how to do it.

Somewhere in the middle of the Franchise Disclosure Document you're reviewing, there's a section that most prospective buyers skim past without realizing what they're looking at.

It's the franchisee contact list in Item 20. A table listing the names, addresses, and phone numbers of every current franchisee in the system — and, separately, every franchisee who left the system in the past fiscal year.

It's the closest thing to a cheat code that franchise due diligence offers. And most buyers never use it.

Why This List Exists

The FTC's Franchise Rule requires franchisors to provide current franchisee contact information precisely so prospective buyers can talk to the people already operating the system. The intent is clear: before you commit six or seven figures to a business, you should be able to speak with people who have already made that commitment and are living with the consequences.

The franchisees on this list have no financial stake in whether you buy. They didn't hire a franchise broker who earns a commission on your sale. They're operators running businesses, and most of them will tell you the truth.

The same is true, often even more so, for the former franchisees listed separately. The people who left the system may be the most candid source of information you can find. They've moved on. There's nothing to protect.

Reading the Item 20 Tables Before You Start Calling

Before you pick up the phone, spend time with the outlet summary tables in Item 20. These tables show, for each of the past three years, how many locations:

• Were open at the start of the year
• Opened during the year
• Were transferred to a new franchisee
• Were terminated by the franchisor
• Were not renewed at the end of the agreement term
• Ceased operations for other reasons

Do the math. Calculate the termination rate (terminations divided by total system size) for each year. Look at the trend — is it stable, improving, or worsening? Calculate what percentage of locations that opened in a given year are still operating three years later.

How to Approach Franchisees

Who to call: Aim for geographic diversity and tenure diversity. Talk to someone who's been in the system for six months and someone who's been in it for eight years. Specifically seek out franchisees in markets similar to where you're planning to open.

How many to call: Five is a minimum. Ten is better. Twenty is thorough. This is a six-figure financial decision — an afternoon on the phone is a reasonable investment.

How to open the conversation: Be direct and respectful of their time: "Hi, my name is [your name] — I'm researching [Brand] as a potential investment and I got your contact information from the Franchise Disclosure Document. If you have 10–15 minutes, I'd really value your perspective as someone who's been operating the system."

The Questions to Ask Current Franchisees

On the overall decision:

• Knowing what you know now, would you make the same investment again?
• What do you wish you had known before you signed?
• If a close friend were considering this franchise, what would you tell them?

On financial performance:

• Is your location performing in line with what you expected when you signed?
• Were the earnings representations in the FDD consistent with your actual experience?
• What was your actual total investment to get open, compared to the FDD range?
• How long did it take to reach break-even?

On the franchisor:

• How responsive is corporate support when you have an operational problem?
• Do you feel the franchisor is a true partner, or more of a landlord who collects royalties?

On the future:

• Do you plan to renew when your term ends?
• Are you planning to open additional locations?

The Questions to Ask Former Franchisees

The conversation with former franchisees is different in tone. They've moved on, which means they're less likely to soften their answers.

Start simply: "I'm researching [Brand] as a potential investment and I see you were previously a franchisee. I'd love to understand your experience if you're willing to share it."

Then ask: What led to your decision to leave the system? Were there things the franchisor said or implied during the sales process that didn't match reality? What would you tell someone who is considering buying this franchise right now?

Signals to Listen For

Positive signals:

• Franchisees who say they'd do it again without hesitation
• Consistent descriptions of responsive, accessible support from corporate
• Franchisees who have opened or are planning to open additional locations
• Agreement between what Item 19 showed and what franchisees report earning

Warning signals:

• Multiple franchisees expressing the same specific frustration independently
• Evasiveness when you ask about financial performance
• Franchisees who are waiting out their term before leaving
• Any franchisee who tells you they were misled during the sales process

The most important signal: consistency. If you call eight franchisees and six of them independently volunteer the same concern, that's not a coincidence. That's a pattern.

Why Most Buyers Don't Do This — And Why You Should

The honest reason most prospective franchisees don't make these calls is that they've already fallen in love with the concept. Calling strangers who might tell them something inconvenient feels like looking for reasons to say no.

That's exactly backwards. You should be looking for reasons to say no — because the cost of a false positive (buying a franchise that fails) is catastrophic.

Call them.

The outlet summary tables in Item 20 — termination rates, survival rates, net system growth — are core inputs to FranScout's franchisee stability scoring. Explore our franchise reports →