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FDD Risk Analysis Report

AI-Powered Franchise Due Diligence by Franchise-Grade Systems
Franchise: [Name Redacted]
Industry: Home Services
FDD Year: 2025
Analysis Date: February 2026
38
of 100

Overall Risk Assessment: High Risk

This FDD contains multiple red flags that require serious investigation before proceeding. Key concerns include uncapped fee escalation, restrictive territory protections, and limited financial performance data.

6 Red Flags 4 Cautions 3 Clear

Item 5: Initial Fees

CAUTION
Caution
The initial franchise fee is non-refundable under any circumstances, including if the franchisor fails to provide pre-opening support as described in Item 11. Many newer franchise systems offer partial refund windows or performance-based fee structures. The absence of any refund provision shifts 100% of the pre-opening risk to you.
Ask the franchisor: "Under what circumstances, if any, is any portion of the initial fee refundable? Has any franchisee ever received a refund, and for what reason?"
Standard
The franchise fee amount falls within the typical range for this industry segment. No unusual additional pre-opening fees were identified beyond the standard franchise fee.

Item 6: Other Fees

HIGH RISK
Red Flag
The technology fee has no stated maximum and can be increased with 30 days notice. The FDD language allows the franchisor to "modify the products, services, and fees associated with required technology" at its sole discretion. Over a 10-year term, this creates unbudgetable cost exposure.
Ask the franchisor: "What has the technology fee been for each of the last 3 years? Will you agree to cap future increases at a specific percentage per year?"
Red Flag
A minimum royalty floor applies regardless of revenue performance. If your location has a slow month, you still owe the fixed minimum. This creates significant cash flow pressure during the exact periods when your business can least absorb additional costs.
Ask the franchisor: "Is the minimum royalty waived during temporary closures? What percentage of current franchisees regularly pay the minimum rather than the percentage rate?"
Caution
You are required to use a franchisor-designated vendor for a core operational function at rates that appear above market. Check Item 8 to determine whether the franchisor or its affiliates receive revenue from this mandatory vendor relationship.
Ask the franchisor: "Does the franchisor receive any compensation from this required vendor? Can I use an alternative provider if they meet specified quality standards?"

Item 7: Estimated Initial Investment

CAUTION
Caution
The FDD estimated initial investment range spans $172,000–$296,000. Based on our analysis of construction and equipment line items, actual leasehold improvement costs in secondary markets frequently exceed the disclosed high-end estimate by 15–30%. Working capital is also understated — the FDD assumption does not account for negative cash flow during ramp-up, which in this segment averages 4–7 months.

Ask the franchisor: "What did your last 10 opening franchisees actually spend compared to the FDD estimate? Can you connect me with 3 franchisees who opened in markets similar to mine in the last 18 months?"

Item 8: Restrictions on Sources

HIGH RISK
Red Flag
You are required to purchase core operational supplies exclusively through franchisor-designated vendors. Item 21 financial statements show the franchisor receives revenue from supplier arrangements. This creates a conflict of interest: the franchisor profits from your purchases regardless of whether those purchases are competitively priced. In comparable franchise systems, mandatory vendor lock-in on similar product categories adds $8,000–$14,000 in annual above-market cost.

Ask the franchisor: "What percentage of your corporate revenue comes from vendor rebates or supplier arrangements? Will you provide in writing that I can use alternative suppliers if they meet your documented quality standards?"

Items 9-23: Remaining Analysis

MIXED
Multiple Findings
The remaining 15 items cover territory protections with three carve-outs for digital and delivery channels (Item 12), a post-termination non-compete with a 25-mile radius and 2-year duration (Item 17), Item 19 financial performance data limited to company-owned locations only — franchisee revenue excluded (Item 19), and Item 20 shows 14 closures and 9 transfers in the last 3 years against 22 new openings. The full analysis flags 4 additional red flags and 3 additional cautions across these items, with specific questions for each.

Items 7-23 are included in your full report.
Your analysis covers all 23 FDD items with findings specific to your franchise deal.

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FDD Red Flags Guide

12 pages of the exact warning signs that cost franchise buyers thousands. Built from nearly two decades of enterprise operations experience and a personal six-figure franchise failure.