FDD Item 20: How to Check Franchise Closures
How many locations of a franchise close each year? The answer is in Item 20 of the Franchise Disclosure Document (FDD), “Outlets and Franchisee Information.” Unlike the earnings figures in Item 19, Item 20 is not optional, so every franchisor’s FDD has it.
The five tables
The FTC Franchise Rule requires five tables. Tables 1 through 4 cover the last three fiscal years; Table 5 reports signed-but-unopened agreements at the latest year-end and projected openings for the next fiscal year (16 CFR 436.5(t)):
| Table | Title in the FDD | What it shows |
|---|---|---|
| 1 | Systemwide Outlet Summary | Franchised and company-owned outlets at the start and end of each year |
| 2 | Transfers of Outlets from Franchisees to New Owners (other than the Franchisor) | Changes in controlling interest to someone other than the franchisor or an affiliate |
| 3 | Status of Franchised Outlets | Openings and every kind of exit, state by state |
| 4 | Status of Company-Owned Outlets | The same for outlets the franchisor runs itself |
| 5 | Projected Openings As Of [Last Day of Last Fiscal Year] | Outlets the franchisor expects to open in the coming year |
Table 3 is the one to read closely
Table 3 has nine columns: State; Year; Outlets at Start of Year; Outlets Opened; Terminations; Non-Renewals; Reacquired by Franchisor; Ceased Operations–Other Reasons; and Outlets at End of the Year (16 CFR 436.5(t)). The four columns between “Opened” and “End of the Year” are the ways a franchised outlet can leave the system:
- Terminations: agreements the franchisor ended before their term expired, without payment, debt forgiveness or other consideration to the franchisee.
- Non-renewals: agreements that reached the end of their term and were not renewed.
- Reacquired by franchisor: outlets acquired by the franchisor during their term for payment, debt forgiveness or other consideration. The location may still be open as a company-owned outlet, which would then appear in Table 4.
- Ceased operations–other reasons: outlets not operating under the franchisor’s brand at year-end for reasons other than termination, non-renewal or reacquisition. Read the FDD’s footnotes for temporary closures or other qualifications.
Each row follows simple arithmetic: outlets at the start of the year, plus outlets opened, minus the four exit columns, equals outlets at the end of the year. If a row doesn’t add up, ask the franchisor why. For example, in both the Servpro franchise cost and Subway franchise cost filings, Table 3 printed row totals carry small arithmetic discrepancies between reported net movements and reported year-end totals that we document directly from their disclosures.
Table 3 is broken down by state, with a total for the franchised outlets in the table’s stated scope. Company-owned outlets are separate in Table 4. Check which formats and territories are included before calling a total the entire system. Your state’s rows can help identify local changes but do not predict results at your proposed location.
Turning Table 3 into a franchise exit rate
Our rate divides the sum of the four exit categories by franchised outlets at the start of the year. Read the source definitions and footnotes before comparing brands: temporary closures, reopened outlets and changes of format can affect what the totals describe.
Look at all three years, not only the latest. A rate that rises each year tells a different story from one that falls. Compare exits with openings, too. A system can grow in total while losing more outlets each year, as long as openings outpace the exits.
Because a reacquired outlet may keep operating, this is a rate of reported franchise exits, not a physical-store shutdown rate or a count of failed owners. Multiple events at one outlet can also require footnote explanations under the rule. Our methodology explains exactly what we count.
Transfers (Table 2)
Table 2 counts acquisitions of a controlling interest during the agreement’s term by someone other than the franchisor or an affiliate (16 CFR 436.5(t)). These are not necessarily arm’s-length business sales. A transfer alone does not establish whether the outlet subsequently stayed open. Read it alongside Table 3 and ask what kinds of ownership changes the franchisor includes.
Signed but unopened locations (Table 5)
Table 5 lists, by state, franchise agreements already signed for outlets that have not opened yet, and the openings the franchisor projects for the coming fiscal year. Ask how long those agreements have been signed, and how many signed agreements in past years never opened.
Signed agreements and projected openings are separate columns. A signed agreement is not an operating outlet, and the projection is not a count of completed openings. Read both alongside the historical openings in Table 3 (16 CFR 436.5(t)(3)).
The owner lists
Item 20 also contains two lists that are worth more than the tables:
- Current franchisees, with the address and phone number of each outlet. A franchisor may instead list only the outlets in your state, adding contiguous states and then the next closest states until at least 100 outlets are listed (16 CFR 436.5(t)).
- Former franchisees: every franchisee “who had an outlet terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under the franchise agreement during the most recently completed fiscal year or who has not communicated with the franchisor within 10 weeks of the disclosure document issuance date” (16 CFR 436.5(t)).
The second list is the one most buyers skip. People who left can tell you why. The FTC says talking to franchisees “may be the most reliable way to get the straight story about the franchisor’s claims. Reach out to as many of them as possible” (FTC, May 2023).
Confidentiality clauses
If franchisees signed confidentiality clauses in the last three fiscal years, Item 20 must include this statement: “In some instances, current and former franchisees sign provisions restricting their ability to speak openly about their experience with [name of franchise system]. You may wish to speak with current and former franchisees, but be aware that not all such franchisees will be able to communicate with you” (16 CFR 436.5(t)).
If you see it, expect some owners to decline to talk. Clauses of this kind have limits: in July 2024 the FTC said that contract provisions, “including non-disparagement clauses that prohibit franchisees’ communications with the government, violate the law” (FTC, July 12, 2024).
Questions to ask the franchisor
- Of the exits in Table 3, which outlets closed, and which kept operating under the franchisor or a new owner?
- Why did outlets leave the system in the most recent year, and were they concentrated in one region or one opening year?
- How long ago were the agreements in Table 5 signed, and how many signed agreements from earlier years never opened?
- Of the transfers in Table 2, how many were owners leaving the system rather than selling to an existing franchisee?
Where to see these numbers on this site
Each franchise page shows its available Table 3 outlet counts and transfers. We show calculated yearly and average franchise exit rates only where the underlying Item 20 records have passed source verification and the rows reconcile. Records with incomplete verification keep their reported counts and source warnings, but withhold calculated rates. The franchise exit-rate study compares published brands whose tables qualify. For the rest of the FDD, see how to read a Franchise Disclosure Document.
