How to read Item 19 in a franchise disclosure document
What the financial performance section tells you, what it leaves out, and the questions to take to franchisee calls.
Item 19 of the Franchise Disclosure Document is where a franchisor may describe how existing units perform. Including it is optional. Under the FTC Franchise Rule, a franchisor that makes financial performance representations must include them in Item 19 and have a reasonable basis and written substantiation for them.
The federal rule requires the FDD to be given to you at least 14 calendar days before you sign a binding agreement or pay any money, and some states add their own registration and disclosure requirements. Use the time, and have a franchise attorney and an accountant review the documents.
What to check in Item 19
- Which units are counted: franchised, company-owned or both, and whether new or closed units are excluded.
- How many: an average across 180 units means something different from one across 12.
- Average or median: a few very strong units pull an average up. Look for medians, quartiles, or how many units met or exceeded a figure.
- Which line: gross sales alone says nothing about profit.
- The period and the notes: the definitions sit in the footnotes.
Read it beside these items
- Items 5 and 6: initial fees and ongoing fees — royalty, ad fund, technology, training.
- Item 7: estimated initial investment. Compare with what franchisees tell you they spent.
- Item 20: outlet openings, transfers, terminations, non-renewals and closures, plus contact details for current franchisees and those who left in the last fiscal year.
- Item 21: the franchisor's financial statements.
Build your own P&L
Start from a sales figure you think is realistic for your market, not the top quartile. Subtract prime cost in your brand's typical range, rent for your site, the royalty and ad fund rates from Item 6, and debt service on your Item 7 investment. What's left is what the business might pay you. If it only works at the average, treat that as a warning. How to calculate prime cost.
Questions for franchisee calls
Call a wide sample of franchisees from Item 20, including some who left. Ask:
- How long did it take to break even, and how close was your investment to Item 7?
- How do your sales compare with Item 19, and why?
- What does field support actually do for you in a month?
- What would you do differently if you opened again?
For franchisors
Specific disclosures — medians and quartiles, unit counts, maturity, and cost lines you can substantiate — are easier for candidates to trust, and they'll check the numbers on validation calls either way. Any change to Item 19 should go through franchise counsel.
Common questions
- What is Item 19 in an FDD?
- The section where a franchisor may state financial performance representations about its units. It is optional, but any such representation must appear there with a reasonable basis and written substantiation.
- How long before signing do I get the FDD?
- Under the FTC Franchise Rule, at least 14 calendar days before signing a binding agreement or paying any money. Some states have additional requirements.
General information for restaurant and franchise operators, not legal, tax, accounting or financial advice. Figures in examples are illustrations, not predictions or promises of results. Laws and platform policies change and differ by location, so check the current rules and talk to a qualified advisor about your situation.