What Item 19 is
Item 19 of the Franchise Disclosure Document is where a franchisor may share financial performance representations: information about sales, costs or profits of existing units. It is optional. If a franchisor includes it, the figures must have a reasonable basis and be presented with the assumptions behind them.
What it often leaves out
Many Item 19s report gross sales only. Sales are not profit. Without occupancy, labor, royalties, marketing fees and owner compensation, a strong revenue number can hide a thin business. Look closely at which units are included, how many are excluded and why, and whether the figures come from company-owned or franchised locations.
Questions worth asking
- How many units are in the sample, and how many were left out?
- What is the median, not just the average or the top quartile?
- How do results differ by unit age and market type?
- Which costs are not reflected in these figures?
- Are company-owned units mixed in with franchised units?
Validate it with owners
The most useful test of Item 19 is a conversation with current and former franchisees. Ask how their results compare to the figures, what their real costs look like and how long it took to get there. If a franchisor has no Item 19 at all, those conversations become essential, not optional.
This article is general information, not legal or financial advice. Have a franchise attorney review any FDD before you sign.