Franchise Genie Editorial Team
Key Takeaways
- Item 19 is the only place in the FDD where a franchisor may legally share sales, cost, or profit information about its units.
- Item 19 is optional, and a franchisor that omits it is not hiding anything by law, though it leaves you with less data.
- Always check which units are included, whether the figures are gross sales or profit, and how many units met or beat the stated numbers.
- Medians usually describe a typical unit better than averages, which a few strong performers can pull upward.
- Use Item 19 as one input to your own model, then test it with validation calls, a CPA, and a franchise attorney.
An item 19 financial performance representation is the section of the franchise disclosure document where a franchisor may share actual or potential sales, costs, income, or profit for its units. It is optional, it must have a reasonable basis and written substantiation, and it is the only legal place a franchisor can give you performance data. Treat it as a record of what a defined group of units did in the past.
Most buyers flip to Item 19 first, and that instinct is reasonable. It is the closest thing to earnings data you will see before you sign. It is also the most misread section of the document. This guide explains what Item 19 can and cannot tell you, how to question it, and how to turn it into a model you can actually use.
What is an Item 19 financial performance representation?
The FTC Franchise Rule defines a financial performance representation broadly. It covers any statement, oral or written, that tells a prospective buyer a specific level or range of actual or potential sales, income, gross profits, or net profits. That includes charts, tables, and even the kind of offhand comment a salesperson might make on a discovery call.
The rule says that if a franchisor makes any such representation, it must appear in Item 19 of the franchise disclosure document. The franchisor also needs a reasonable basis for it and written substantiation, and it must describe the assumptions behind the figures.
If a franchisor chooses not to make one, Item 19 will include a required statement saying so. In that case, nobody on the franchisor’s sales team should be sharing earnings figures with you in any form.
Why the rule matters to you
The rule protects you from cherry-picked sales pitches. Without it, a franchisor could show you its single best location and call it typical. With it, any number you rely on has to be disclosed in writing, in a specific place, with notes describing what it covers. The FTC’s Franchise Rule Compliance Guide describes what franchisors must include when they make these representations.
What an Item 19 typically contains
Item 19 disclosures vary widely in depth. Here are the common formats, from thinnest to richest.
| Format | What it shows | What it leaves out |
|---|---|---|
| Gross sales only | Average or median revenue for a group of units | All costs, so you cannot see margin |
| Sales by tier or quartile | Revenue for top, middle, and bottom groups | Costs; sometimes unit counts per tier |
| Sales plus selected costs | Revenue with cost of goods, labor, or occupancy | Owner salary, debt service, some overhead |
| Unit-level profit statement | A version of four-wall or EBITDA-style earnings | Your financing costs, taxes, and your specific rent |
| Company-owned units only | Results from franchisor-run locations | How franchisee units actually perform |
None of these formats tells you what you will earn. Each one tells you what a defined group of units reported over a defined period, under the definitions the franchisor chose.
How to read Item 19: seven questions to ask
Work through these questions with the Item 19 open in front of you. The answers are almost always in the notes and footnotes.
1. Which units are included?
Look for the total number of units in the system and the number included in the data. Franchisors often exclude units open less than a full year, units that closed during the year, or units in certain markets. Some exclusions are reasonable. A unit open for four months distorts an annual average. But if half the system is excluded, you are looking at a curated sample.
Cross-check against FDD item 20, which shows how many units opened, closed, and transferred. If many units closed and none of them appear in Item 19, the data may look better than the system’s real experience.
2. Are these franchised units, company-owned units, or both?
Company-owned units can differ from franchised units in meaningful ways. They may sit in the best markets, pay no royalty, and benefit from corporate purchasing. If the data blends both, ask for the franchised-only figures.
3. Is it gross sales or something closer to profit?
Gross sales is the most common metric, and it is the least useful for estimating owner earnings. A unit with high revenue and thin margins can leave less for the owner than a smaller, efficient unit. If only revenue is shown, you will need to build the cost side yourself.
4. Average or median?
An average adds up all results and divides by the number of units. A few very strong units can pull it well above what a typical unit does. A median is the middle result, which usually describes a typical unit better. If only an average is shown, look for a statement of how many units met or exceeded it. If that number is well under half, the average overstates the typical experience.
5. How many units hit the stated figure?
The rule expects franchisors to disclose how many and what percentage of units in the group actually attained or surpassed the stated results. This one data point is often more telling than the headline number.
6. How old are the units in the sample?
Mature units generally outperform new ones. If the sample is mostly units open five years or more, a first-year owner should expect a slower ramp. Look for any breakdown by year of opening.
7. What costs are missing?
Even a profit-style Item 19 usually stops before owner compensation, debt service on your loan, depreciation, and taxes. Rent and labor in your market may differ sharply from the system average. List every cost that is not included so you can add it to your model.
How to turn Item 19 into your own model
Item 19 is a starting point. A careful buyer builds a simple, conservative model that combines it with the rest of the FDD and local reality.
- Start with a conservative revenue figure. Use the median or a lower quartile, not the average or top tier. Adjust for ramp-up in year one.
- Subtract royalties and brand fund fees. These come from Item 6 and are usually a percentage of gross sales.
- Subtract cost of goods and labor. Use Item 19 data if available, then confirm with current owners.
- Subtract occupancy. Use real quotes for rent in your target area, not system averages.
- Subtract other operating costs. Insurance, software, local marketing, utilities, and supplies.
- Subtract debt service. Use the loan amount you actually expect, based on Item 7 and your financing.
- Compare what is left to your living expenses. If you need a salary from day one, check whether the model supports it in a realistic ramp.
Our guide on how much does a franchise cost explains startup costs and working capital in detail, and our breakdown of the franchise fee shows how the upfront fee fits into the total. Have a CPA review your model before you rely on it.
A hypothetical example
Consider a hypothetical buyer, Marcus, reviewing a home services franchise. The Item 19 shows average gross sales for units open at least two full years, and a note says 40 percent of those units met or exceeded the average. The data excludes units open under two years and 6 units that closed during the year.
Marcus does three things. He uses the median instead of the average. He asks the franchisor for results from units in their first and second years. And he calls 4 owners from the Item 20 list who opened within the last two years to ask how their ramp compared to the data. His model ends up more conservative than the headline number, which is the point.
What if there is no Item 19?
Many franchisors do not include one. Newer systems may not have enough history to substantiate figures. Some established systems choose not to disclose for legal or competitive reasons. The absence of an Item 19 is not proof of poor performance, but it means you have less data and more work to do.
Without Item 19, your validation calls become your primary source of performance insight. Current owners may choose to share their own results. You can ask them directly, though they are not required to answer. Our list of franchise validation questions and our franchise due diligence checklist cover how to ask those questions respectfully and what to verify.
Red flags around financial performance
- A salesperson shares revenue or profit figures that do not appear in Item 19.
- You receive a spreadsheet or pro forma from the franchise development team that projects your earnings.
- The Item 19 includes only top-performing units without clearly saying so.
- The Item 19 excludes all closed units while Item 20 shows a meaningful number of closures.
- The franchisor discourages you from talking to owners about their numbers.
The FTC’s consumer’s guide to buying a franchise warns buyers to be skeptical of earnings claims made outside the disclosure document. If any of these come up, document them and tell your franchise attorney.
Your next step
Item 19 makes the most sense when you already know what you need a business to do for you, whether that is replacing a salary, building equity, or protecting your time. Different goals call for different industries and models. Take the free Franchise Genie assessment to identify your owner archetype and the industries that fit, then read every Item 19 with your own targets in mind.
Frequently Asked Questions
Is a franchisor required to provide an Item 19?
No. Under the FTC Franchise Rule, Item 19 is optional. A franchisor may include a financial performance representation if it has a reasonable basis and written substantiation for it. If it chooses not to, Item 19 must contain a statement that the franchisor does not make financial performance representations, and its sales staff may not share earnings information any other way.
What should I do if a salesperson gives me earnings numbers not in Item 19?
Treat it as a serious red flag. Under the FTC Franchise Rule, financial performance information must appear in Item 19. Write down what was said, who said it, and when, and share it with your franchise attorney. You can also ask the franchisor to confirm in writing whether the figures appear in the FDD. Do not rely on numbers that are not disclosed there.
Does Item 19 show franchisee profit?
Sometimes, but often not. Many Item 19 disclosures report only gross sales or revenue. Some add cost-of-goods or labor figures, and a smaller number show a version of unit-level profit before owner salary, debt service, and other items. Read the notes carefully to see exactly which costs are included, then build your own estimate of owner earnings.
Why might a franchisor not include an Item 19?
Reasons vary. A newer franchisor may not have enough operating history to substantiate figures. Others choose not to disclose because of legal caution, inconsistent unit data, or because results vary widely. The absence of an Item 19 is not proof of poor results, but it means you must rely more heavily on validation calls and your own modeling.