Many franchisors include some financial performance representation in Item 19 of their Franchise Disclosure Document. Others disclose no sales or earnings information at all, because the Franchise Rule does not require one. When a franchisor does disclose performance data, the structure of the disclosure often tells a buyer more about the business than the headline number does.
If you are inside the 14-day FDD review window before signing or paying, Item 19 is one of the sections worth the closest reading. Treat it as evidence to test, not as a projection of what you will earn.
What the federal rule requires
16 CFR 436.5(s) governs financial performance representations in the FDD. A franchisor may state that it does not make one. If it does make one, the disclosure must have a reasonable basis and written substantiation, include prescribed explanatory information, describe material bases and assumptions, and state that substantiation will be made available on reasonable request.
The rule also addresses outlets included in historical representations and permits certain supplemental information subject to conditions. Read the complete current subsection rather than relying on an earnings headline.
That "available on request" piece matters in practice. If an FDD reports a median or average figure for a performance metric, the franchisor is expected to have the underlying data and provide it if asked. Asking is how a buyer finds out whether the methodology is narrower than the headline number implies.
Item 19 is evidence, not a projection
Extract each representation exactly:
| Field | What to record |
|---|---|
| Metric | Gross sales, net sales, gross margin, profit, cost, transactions, or another measure |
| Population | Franchised, company-owned, geography, format, age, open/closed status |
| Period | Calendar or fiscal dates and length of operating history |
| Statistic | Mean, median, range, quartile, percentage meeting a threshold, or individual examples |
| Exclusions | Closures, transfers, remodels, nontraditional sites, incomplete records, or other omitted outlets |
| Assumptions | Owner involvement, hours, pricing, staffing, occupancy, financing, and ramp-up |
| Substantiation | Data source, sample size, calculation method, and material limitations |
Do not label one presentation "honest" and another "useless" without examining its purpose and basis. An average and a median answer different questions. Revenue, gross profit, and net income are different measures. An outlet-level result is not the buyer's forecast.
The population question
The first question for any Item 19 number is which units it represents. A disclosure limited to a top-performing segment, to units open at least a set number of months, to company-owned units only, or to a specific geography will tend to look better than the full, mixed distribution of franchisee outcomes across the whole system. None of that makes the disclosure improper under the rule, which permits a defined population as long as it's disclosed, but it does mean the population line is where a buyer's read of the number should start. A disclosure that states its full population plainly, for example naming the exact count of franchised locations included as of a stated date, is easier to evaluate than one scoped to "top performers open at least three years."
Average vs. median, and which measure is disclosed
Average and median answer different questions, and a system with a wide spread between its best and weakest units can have an average that's meaningfully higher than its median. Illustrative math only, not a real system: on a franchise system where a strong minority of units perform far above the rest and a larger group performs well below them, the average across all units will be pulled upward by the strong performers in a way the median will not be. A franchisor disclosing only an average and describing it as "typical" is describing a number that a below-average unit, which by definition is common, will not match. Systems that disclose both average and median, and that separate the two clearly, are easier to evaluate than systems that disclose one number and let the reader assume it describes the middle of the distribution.
Revenue, gross profit, and net profit are also different measures, and a disclosure may report revenue only. Revenue alone does not say anything about whether the franchise is profitable for the franchisee once rent, royalties, ad fund contributions, labor, cost of goods, overhead, and any acquisition debt service are accounted for. A disclosure of gross profit is more informative than one of revenue alone. A disclosure of net profit is rarer and, where present, more directly useful to a buy decision. Where a system discloses only revenue, request the underlying unit-level profitability data in writing rather than estimating a margin.
Geographic and time period scope
Unit performance in a franchise system commonly varies by geography and by format, and an Item 19 disclosure that aggregates performance across all geographies and locations can obscure that variation. A disclosure broken out by region, by urban versus suburban format, or by location age gives a buyer more to work with than one aggregate figure. Time period matters in the same way: a disclosure covering a single fiscal year reflects that year's specific conditions, which may not repeat. Ask what period the disclosure covers and whether more recent or multi-year data exists.
Material assumptions and exclusions
Every Item 19 disclosure should state the assumptions and exclusions behind its numbers. Categories to look for include a minimum time a unit must have been open to be included (which excludes new units still ramping up), exclusion of units that closed during the reporting period, and an assumption that the franchisee operates the unit personally rather than through a manager. These assumptions describe what is and is not captured in the number. An assumption that excludes closed units, for instance, will tend to understate the risk actually experienced across the system. An assumption of owner-operator involvement says little about the economics of an absentee-ownership model if that's what you're planning.
What to do with the Item 19 number
Once you've read Item 19 carefully and requested the underlying substantiation, the next step is calling current and former franchisees using the contact list in Item 20. The franchisees in Item 19's data are the data points; the franchisees you actually reach are the verification. Ask how their results compared with the Item 19 disclosure, what their unit did most recently, what their profit looks like after all expenses and any debt service, and whether they'd make the same decision again. Item 20 also includes contact information for franchisees who left the system, and those calls are often the ones with the most to say about how the disclosed numbers held up in practice.
Reconcile Item 19 with the rest of the FDD
Compare the population and dates with Item 20 openings, closures, transfers, and contacts. Reconcile required fees and operating obligations with Items 5, 6, 7, 8, 11, and 12. Review audited financial statements in Item 21 and the contracts in Item 22. Record every mismatch for the franchisor and counsel.
Questions to send in writing
- Please provide the written substantiation required by Item 19.
- Which outlets were included and excluded, and why?
- How were closures, transfers, partial years, and nontraditional locations treated?
- What costs are absent from a revenue or gross-profit representation?
- Have the method, system, pricing, or outlet population changed since the measured period?
- May the buyer share the substantiation with advisers and a lender?
Inkvex can quote Item 19, map it to other FDD items, and organize questions in a first-pass for your franchise attorney. It does not validate the franchisor's source data or forecast profitability.
Inkvex provides legal information, not legal, financial, or investment advice. Review the current FDD, substantiation, franchisee evidence, and buyer-specific model with qualified advisers.
Turn Item 19 into an evidence table
For each number you may use, record the exact statement, unit population, period, geography, ownership type, inclusion and exclusion rules, and whether it is an average, median, range, or count. Keep franchised and company-owned outlets separate when the FDD does. If the presentation covers a subset, calculate the represented share only from the disclosed population and do not silently treat it as the whole system.
Then reconcile Item 19 with Item 7 investment, Item 6 fees, Item 20 openings and closures, audited financial statements, territory terms, and the franchise agreement. A revenue figure is not profit, cash flow, or debt-service capacity. Build the buyer's model with independently verified local rent, labor, financing, tax, and operating assumptions.
Questions for validation calls
Ask franchisees how their outlet compares with the disclosed population, which costs changed after opening, how long ramp-up took in their circumstances, and which assumptions they would revise. Preserve notes and distinguish personal experience from system-wide evidence. The FTC rule permits an Item 19 representation when the franchisor has a reasonable basis and written substantiation; it does not guarantee the buyer will achieve the result.
FDD Item 19 FAQ
Is Item 19 required in an FDD?
Every FDD has an Item 19 section, but franchisors are not required to disclose sales, income, or profit information. If a franchisor makes no financial performance representation, Item 19 may say that directly. That absence is itself useful diligence information: it means the buyer has to build unit economics independently, largely from Item 20 franchisee calls and Item 7 investment data.
Can a franchisor make earnings claims outside Item 19?
Generally no. The rule requires that sales, income, or profit claims be included in Item 19 if the franchisor chooses to make them. Narrow exceptions can apply, such as actual records for a specific existing outlet you're considering buying, and supplemental information tied to the Item 19 disclosure itself. Treat any earnings claim made outside Item 19, in a sales conversation for instance, as a diligence issue to document and raise with franchise counsel rather than a number to rely on.
What should a franchise buyer verify in Item 19?
Verify the population, metric, time period, exclusions, assumptions, and substantiation, then compare the result against Item 7 investment costs, Item 20 outlet turnover, and calls with current and former franchisees. A revenue figure without cost structure, debt service, and owner compensation layered in can still support signing a deal that doesn't work financially.
Run an FDD Scan
Inkvex's FDD Scan reviews the full item structure of a Franchise Disclosure Document, including Item 19, and cross-references it against related items such as Item 7 and Item 20 to help surface inconsistencies for your attorney to evaluate. Single Document Review is $49 for one credit with 12-month access, and the normal processing target is under 3 minutes; large, scanned, or unusually dense filings can take longer. Run an FDD Scan or see pricing for current offers.
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This article is for informational purposes only and does not constitute legal advice. For high-stakes agreements, consult a qualified attorney.