FRANCHISE LAW
FDD Item 19: How to Read Financial Performance Data
Item 19 of the Franchise Disclosure Document is the only place a franchisor may legally tell you what its franchises earn — and disclosing it is entirely optional. When a franchisor does include an Item 19, the figures must rest on a reasonable basis with written substantiation the franchisor will give you on request. When a franchisor leaves Item 19 blank, federal law forbids it (and its salespeople) from telling you projected or actual earnings any other way.
That single rule is why Item 19 matters more than almost anything else in the FDD. This guide explains what belongs in it, how to read the numbers, and what an empty Item 19 really signals.
What Item 19 Is
Item 19 is the “Financial Performance Representation” (FPR) — historically called the earnings claim. Under the FTC’s Franchise Rule, a franchisor may present financial results of its outlets here: average or median revenues, gross sales bands, sometimes cost and profit data. It is the franchisor’s chance to show, in writing and on the record, what the system actually produces.
Two features define it. First, it is optional — a franchisor is never required to make an FPR. Second, it is gated by accuracy — if the franchisor makes one, it must have a reasonable basis for the figures at the time, must keep written material substantiating them, and must hand that substantiation to a prospective franchisee who asks.
The Rule Behind the Numbers
The “reasonable basis plus written substantiation” standard is the keel that keeps Item 19 honest. A franchisor cannot publish an inviting average it cannot back up. If it includes forward-looking projections rather than historical results, it must disclose the assumptions behind them and a clear basis for the forecast. For a brand-new franchisor with no operating history, that is hard to do — which is one reason many young systems run no Item 19 at all.
This also means the salesperson across the table is on a short leash. If the FDD has no Item 19, “our owners clear six figures” is not allowed. Any earnings information must live inside Item 19 or not be communicated at all.
What’s Actually in an FPR
When you read an Item 19, four variables shape what the numbers mean:
| Component | The question to ask | Why it changes the picture |
|---|---|---|
| Group measured | Which outlets are in the average? | A figure built only from top performers or company-owned units flatters the system |
| Time period | What span does it cover? | Usually the most recent fiscal year — older or cherry-picked periods distort trends |
| Number of outlets reporting | How many units, and what share of the system? | A “$700k average” from 8 of 400 outlets tells you almost nothing |
| Distinguishing characteristics | Are the units like the one you’d open? | Location, format, and age can make a downtown flagship irrelevant to a suburban startup |
Also watch the metric itself. A franchisor that reports gross sales is not telling you profit — royalties, rent, labor, and the ad fund all come out of that number before you keep anything.
How to Use Item 19 Without Getting Burned
Treat the average as a starting point, not a promise. Note how many outlets actually hit or beat the reported figure — a mean dragged up by a few standouts hides a long tail of weaker units, so a median is usually more honest than an average. Ask for the written substantiation; you are entitled to it. Then cross-check the figures against live operators using the franchisee list in Item 20, and pair the revenue picture with the full cost of operating from Items 6 and 7 to model a realistic payback. Our breakdown of every franchise fee shows what comes out of those gross sales before you reach profit.
When There’s No Item 19
An empty Item 19 is legal and common, but it is information. It may mean the franchisor is too new to substantiate figures, that results vary too widely to summarize, or that the numbers simply aren’t flattering. None of those is automatically disqualifying — but it puts the burden on you. Build your own estimate from Item 20 calls to current and former franchisees, and weigh the silence against competing brands that do disclose. A blank Item 19 alongside heavy Item 3 litigation is a far worse sign than a blank Item 19 in a tightly run young system.
Frequently Asked Questions
Is a franchisor required to provide Item 19?
No. Making a Financial Performance Representation is voluntary. But if a franchisor does make one, it must be accurate, supported by a reasonable basis, and backed by written substantiation available to you on request.
Can a salesperson tell me earnings if the FDD has no Item 19?
No. If the FDD contains no Item 19, the franchisor and its representatives are prohibited from making earnings claims to you in any form — verbal, email, or napkin math. Insist that any figure be in Item 19.
Does Item 19 show profit or just revenue?
It depends on the franchisor. Many FPRs report only gross sales or revenue, not net profit. Read carefully, and never treat a top-line average as take-home income — subtract royalties, ad fund, rent, labor, and other costs first.
How do I verify an Item 19 figure?
Request the written substantiation the franchisor must keep, then call current and former franchisees from the Item 20 list and compare their experience to the disclosed numbers.
Item 19 is where a franchise’s economics are either proven or conspicuously absent. Reidel Law Firm reviews FDDs for prospective franchisees on a flat fee, including a plain-English read of the Item 19 numbers (or the meaning of their absence) — get your FDD reviewed before you sign.
