FDD Validation Calls: Questions to Ask Current and Former Franchisees

Item 20 of every Franchise Disclosure Document contains the names, cities, and (where state law requires) phone numbers of every current franchisee in the system, plus the contact information for franchisees who left the system in the past fiscal year. That list is in the document for a reason: the FTC Franchise Rule (16 CFR §436.5(t)) requires its disclosure so prospective franchisees can independently verify what the document says. Conversations with existing and former operators — usually called validation calls or franchisee reference calls — are one of the few places a buyer can learn how the system actually behaves day to day, separate from how it is described in writing.

This post is a factual guide to what validation calls cover, what to listen for across calls, and what the practice cannot do.

Why Item 20 lists franchisees by name

Item 20 is required to include five tables of outlet and franchisee information. Among the required disclosures, the named lists of current and recently-departed franchisees exist as a structural counterweight to everything else in the FDD. The franchisor writes the rest of the document. The franchisee lists exist so prospective buyers can call past and present operators and ask whatever they want, without the franchisor as an intermediary.

The required disclosure typically includes:

• Current franchisees — name (or business name), city or other location identifier, and a phone number (states vary on whether numbers are mandatory).
• Departed franchisees — franchisees who left the system within the past fiscal year through termination, non-renewal, transfer, ceased operations, or any other reason. Name, last-known city, and a phone number (state-dependent).

Some FDDs separately list area developers, area representatives, and master franchisees in their own tables. Item 20 is therefore the single place in the document where the system's people are searchable.

Who to call

A useful set of validation calls is a sample, not a single perspective. A practical mix:

• Recently-opened operators (open less than 18 months). They remember the sales process, the training program, and opening support clearly. Their economics are still ramping.
• Multi-year operators (open three or more years). They have lived through at least one annual fee schedule update, possibly a system-wide remodel cycle, and a renewal conversation if their initial term is short. Their answers describe the steady-state relationship.
• Multi-unit operators. Their leverage with the franchisor is different from a single-unit operator's, and their answers reflect that. Useful for understanding system economics at scale, less useful as a baseline for a first-time franchisee.
• Departed franchisees. The Item 20 departure list usually has phone numbers when state law requires them. These are often the most candid conversations in the process.
• Geographic mix. Operators in different markets see different demand environments, different state-level cost structures, and different franchisor regional teams.

Sample size matters more than any single call. Patterns across five to ten conversations are more informative than the most articulate single response.

What to ask

The substance of validation calls falls into four loose categories. The questions below are the territory, not a script. Each operator will have more to say about some of these than others.

Operations

• How accurate was the training program — what does the operator wish had been covered that wasn't?
• How responsive is field support when something breaks (technology, supply, employment, customer complaint)?
• What does the ad fund deliver locally? Is the operator receiving local marketing support beyond the national fund?
• What mandatory upgrades or remodels have been required during the term, on what notice, and at what cost?
• How often does the operations manual change, and how is the franchisee notified?

Economics

• How long after opening did revenue reach the operator's pre-opening projection? How does current revenue compare to that projection?
• How long until break-even on cash, including debt service?
• How do current four-wall margins compare to the operator's expectations at signing? What have been the largest unanticipated expenses?
• How predictable have royalty, technology, and ad fund obligations been year over year?
• What was the actual all-in opening cost compared to the Item 7 estimate?

Relationship

• How does the franchisor handle disputes — operationally, before any formal process?
• How available is senior franchisor staff during real operating problems?
• How transparent is the franchisor about system-wide changes (new product launches, mandatory technology, supplier changes)?
• Is there a franchisee advisory council, and how meaningful is its role?
• How predictable have policy changes been? What was the most surprising change during the operator's term?

Hindsight

• Knowing what they know now, would they buy this franchise again? Would they buy a second unit?
• What is one thing they wish they had known before signing?
• What is one thing they wish they had asked existing franchisees before signing?
• What surprised them about the system — positively or negatively — in the first 12 months?

The hindsight category often surfaces information the first three categories don't. The first three surface facts; hindsight reveals how operators feel about those facts after living with them.

What to listen for

Across calls, a few patterns are more informative than any single answer.

Consistency. When five operators give substantively the same answer to a question — "training was strong, field support is thin in months 6–18, the technology rollout last year was rough" — the answer is probably an accurate description of the system. When the same question gets five different answers, the variable is more local (market, regional team, operator skill) than systemic.

Tone. Operators who are willing to spend 30–45 minutes describing both strengths and weaknesses in detail, with specifics (dates, numbers, names of regional staff), are typically describing what they actually experience. Calls that are uniformly positive or uniformly negative without specifics are less informative.

Willingness to talk. Operators who decline calls, or who hand the call off to franchisor relations, are themselves a data point. A system in which a meaningful share of franchisees will not speak to prospective buyers is unusual. The reasons vary; raising the pattern with the franchisor directly is a common follow-up.

Departed-franchisee perspective. Departed operators often share information current operators are reluctant to share — particulars of disputes, the specifics of why a unit closed, what the transfer or termination process actually looked like. They also have hindsight current operators don't yet have. Their accounts are not always representative of the median experience, but they fill in the parts of the picture the system's continuing operators are least able to describe.

Calling departed franchisees

The departed list is a regulated disclosure, not a marketing list. It is the most candid contact list in the FDD. A few practical notes on the conversations:

• Departed operators are typically willing to talk; many want their experience known.
• The conversations cover ground current operators rarely will: termination process, dispute outcomes, transfer mechanics, the franchisor's behavior in the wind-down.
• Departed operators' descriptions of system-wide issues should be cross-checked against current operators. Their description of franchisor behavior in their specific dispute is harder to cross-check and worth weighing accordingly.
• Some departed operators will be subject to settlement or non-disparagement obligations and will say so. Their willingness to talk within those limits is itself informative.

Documenting the calls

A simple log makes patterns visible. Useful columns to keep:

• Operator name and unit count
• Years open
• Geographic market
• Date of call and length
• Revenue ramp (months to a target the operator names)
• Time to break-even on cash
• Largest unanticipated cost during the term
• Most recent mandatory remodel or upgrade
• Score or one-line answer on the "would you buy again" question

The point of the log is not analytics; it is consistency-checking. Five calls' worth of structured notes turn a series of impressions into a comparable record.

What validation calls cannot do

Validation calls are useful, and they are limited. A few practical caveats:

• A sample, not a survey. A handful of calls is not a statistical representation of the system. Concentrated experiences (one unhappy operator in a strong market, one happy operator in a struggling market) are real but unrepresentative on their own.
• Sample bias toward easy-to-reach operators. Operators who answer the phone, return voicemails, and engage with prospective buyers are over-represented. Operators who are too busy, too disengaged, or too unhappy to talk are under-represented.
• Small systems have few callable franchisees. A system with 25 units and a recent rapid-expansion phase may have only five or six franchisees with the kind of operating history that makes validation useful.
• Operators describe their experience, not the franchisor's overall performance. A regional operations manager's behavior toward one operator is not necessarily representative of the franchisor's company-wide approach.
• Validation calls do not replace the FDD. They complement it. Where a validation call's account contradicts the FDD, the disclosure document is the legally binding record; the call is signal about how the document is operating in practice.

Reading Item 20 alongside the call list

Item 20's quantitative tables — outlet counts, openings, closings, terminations, transfers, non-renewals, reacquisitions — set the context for the named lists. A system with 200 units and 40 closings in the past three years has different validation-call dynamics than a system with 200 units and four closings. The aggregate tables tell the buyer how representative the named departed-franchisee list is. The Item 20 explainer covers the structure of those tables in more detail.

For a broader walkthrough of how Item 20 fits into the rest of the document, see How to Read an FDD. For prospective buyers comparing more than one opportunity, see How to Compare Two FDDs Side by Side.