FDD Item 19: Financial Performance Representations Explained
Item 19 of the franchise disclosure document is the section where franchisors may voluntarily disclose financial performance information about their franchise locations. It is not required, but when included it gives prospective franchisees data on actual or potential sales, gross profits, and net income. It is one of the most closely reviewed sections in any FDD.
What Is Item 19 of the FDD?
Item 19 covers financial performance representations made by a franchisor to a prospective franchisee. It is governed by the Federal Trade Commission under the Franchise Rule, specifically 16 CFR 436.5(s).
The FTC defines a financial performance representation broadly. It includes any oral, written, or visual representation made to a potential franchisee that states or implies a specific level or range of actual or potential sales, income, gross profits, or net profits. Item 19 is the only place in the franchise disclosure document where this financial data can be disclosed. Any financial information shared outside of Item 19 must comply with strict limitations under the Franchise Rule.
Is Item 19 Required?
Item 19 is not required. Franchisors can choose whether to include financial performance data. However, every franchisor must include at least one of two prescribed statements in this section regardless of whether financial data is disclosed.
What Franchisors Must Include Even Without an FPR
Every franchisor must open Item 19 with the FTC-mandated statement allowing financial performance disclosures. Franchisors who choose not to make any financial performance representations must also include this prescribed statement:
“We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting [name, address, and telephone number], the Federal Trade Commission, and the appropriate state regulatory agencies.”
Why Many Franchisors Choose to Include Item 19 Data
Prospective franchisees increasingly expect financial data before committing to a franchise opportunity. Item 19 is one of the most direct ways a franchisor can demonstrate that their concept is proven and generating real results. Without it, convincing potential franchisees that the business model works becomes significantly harder. Franchisors who include strong Item 19 data tend to have shorter franchise sales cycles and attract more qualified candidates. Those without it may lose candidates to competing franchise brands that do provide it.
What Can Be Included in Item 19?
Item 19 can include a wide range of financial metrics as long as each has a reasonable basis and written substantiation.
Gross Sales and Revenue Data
Gross sales and gross revenue figures are the most common type of Item 19 disclosure. Franchisors typically present average revenue across all franchised outlets, broken down by performance tier. Gross sales data is generally easier to disclose than profit data because it does not require detailed cost assumptions.
Net Profit and Gross Profit Data
Net profit and gross profit disclosures are more complex. They require accounting for costs including royalty payments, cost of goods, labor, and rent. Because cost structures vary by location, profit margins must be presented carefully. Franchisors who include net profit data must have a reasonable basis for every figure and must be able to substantiate it in writing.
Charts, Tables, and Financial Models
Item 19 data is commonly presented in tables and charts. Common formats include:
- Average revenue tables broken down by quartile or performance tier
- Year-over-year revenue comparisons across current franchisees
- Actual operating results from existing franchisees or company-owned outlets
- Supplemental FPR data tied to specific locations or market conditions
What "Reasonable Basis" Means for Franchisors
Every financial performance representation in Item 19 must have a reasonable basis and written substantiation under 16 CFR 436.5(s). The most defensible disclosures come from:
- Audited financial statements from franchised outlets
- Verified sales data reported by current franchisees
- Historical data from company-owned locations with similar operating models
- Actual operating results from existing outlets that reflect the real franchise system
Financial projections without historical support do not meet the reasonable basis standard. A franchisor who includes unsubstantiated financial data in Item 19 creates legal exposure under the Franchise Rule. Working with experienced franchise attorneys during franchise development helps franchisors build an Item 19 that is accurate and defensible.
Common Mistakes Franchisors Make With Item 19
Overstating Financial Performance
Inflating or misrepresenting financial data in Item 19 is one of the most serious mistakes a franchisor can make. The FTC can pursue enforcement action for financial performance representations that lack a reasonable basis. Every figure disclosed must be accurate, substantiated, and representative of actual operating results across franchised outlets.
Leaving Item 19 Blank Without a Strategy
Leaving Item 19 blank is legal, but doing so without a plan for handling candidate questions about financial performance can hurt franchise sales. Some franchisors choose to disclose limited financial data while building a larger data set from current franchisees. Others provide a supplemental FPR tied to a specific location. Both approaches are acceptable under the Franchise Rule when done correctly.
Franchise Genesis
How Franchise Genesis Helps Franchisors Navigate Item 19
Preparing Item 19 correctly requires legal precision and a clear understanding of how financial data affects franchise sales. Franchise Genesis works with franchisors to build a franchise disclosure document that is legally compliant and positioned to support franchisee recruitment.
Franchise attorneys are included in the Franchise Genesis development program. They guide franchisors through the disclosure requirements, help structure financial performance data with a defensible reasonable basis, and make sure Item 19 reflects actual operating results accurately.
A well-prepared Item 19 is not just a legal requirement. It is a franchise sales tool. Contact Franchise Genesis to learn how the development program supports FDD preparation from Item 1 through Item 23.
Frequently Asked Questions
Item 19 of the franchise disclosure document is the section where franchisors may disclose financial performance representations to prospective franchisees. It can include gross sales, gross revenue, gross profit, net profit, and actual operating results from franchised outlets. It is governed by the FTC Franchise Rule under 16 CFR 436.5(s).
No. Franchisors are not required to make financial performance representations in Item 19. However, every franchisor must include the FTC-mandated prescribed statement in this section regardless of whether financial data is disclosed.
Item 19 can include gross sales, average revenue, gross profit, net profit, profit margins, and actual operating results from existing franchisees or company-owned outlets. All financial data must have a reasonable basis and written substantiation grounded in historical data.
No. Under the Franchise Rule, any financial performance representation made to a potential franchisee must be included in Item 19 of the FDD. Verbal representations about potential earnings made outside of Item 19 violate disclosure requirements and create legal exposure for the franchisor.
The most reliable way to validate Item 19 financial data is to speak with current and former franchisees listed in Item 20 of the FDD. Comparing their actual operating results with the figures presented in Item 19 gives prospective franchisees the most direct view of real financial performance across the franchise system.