Beyond the Binder: Item 19 — Financial Performance Representations
Item 19 of the Franchise Disclosure Document (FDD) is where a franchisor may choose to disclose Financial Performance Representations (FPRs), sometimes called earnings claims. It’s the only part of the FDD where a franchisor can legally share numbers about sales, profits, or costs. Everywhere else; brochures, webinars, phone calls, or “back-of-the-napkin” projections; those numbers are prohibited unless they match what’s written here.
If you want to know what franchisees are really earning, Item 19 is where the truth should live. The problem is, truth and marketing often share a very small apartment.
The Big “If”: Disclosure Is Optional
The FTC Rule doesn’t require franchisors to include Item 19 data. They can stay silent. And many do.
If they include it, they must have a reasonable basis for the data and be able to substantiate it with proof. That means tax returns, POS reports, or audited statements, not just “our franchisees do great.”
When a franchisor omits Item 19, it’s not usually because they forgot. It could be because real data would hurt the sale. Lack of Item 19 disclosure often signals one of three things:
The system is too new to have verifiable financial results.
The results aren’t strong enough to attract buyers.
They’d rather let the sales team “imply success” without saying it on paper.
Silence in Item 19 is strategic. It’s the franchisor’s way of keeping you curious without being accountable.
How the Numbers Get Dressed Up
Even when a franchisor does disclose performance data, the numbers are rarely as clear as they look. Here’s how Item 19s often get “polished”:
Top-Performer Trick: Only top quartile franchisees are included in the averages.
Corporate Blend: Company-owned outlets are mixed into the data, making the system appear more profitable.
Exclusion Shuffle: Failing or recently closed units are left out “for accuracy.”
Partial-Year Projections: Short operating windows are annualized to make small numbers look big.
Undefined Metrics: Using gross revenue instead of profit, skipping expenses altogether.
Every word in the fine print matters. If the data isn’t based on all open units or omits cost categories, the “average” isn’t average at all.
When There’s No Item 19: The Wild West of Earnings Claims
Here’s where many franchise sales go off the rails.
When there is no Item 19, or when the Item 19 data is incomplete, the franchisor and its sales team are prohibited from making any financial performance statements whatsoever: verbally, in writing, or even implied through examples.
That means:
No “most franchisees make six figures.”
No “your ROI is usually 18 months.”
No “our average store does about $800,000.”
No “I can’t give you numbers, but everyone’s doing really well.”
No “our average ticket is $22 and we serve around 300 customers a day.”
Each of those statements is an earnings claim, and if it’s made before you’ve been disclosed with the FDD, or when the FDD has no Item 19, it’s a violation of federal franchise law.
The rule is black and white:
If there is no Item 19, there can be no earnings claims. None.
Yet violations are common, especially among emerging brands. Franchise sales reps often “test interest” by dropping revenue hints during early calls or Discovery Day visits. Those comments are not casual, they are calculated illegal inducements.
How It Plays Out in Real Life
Here’s how franchisors skirt the rules in practice:
“We can’t disclose numbers, but our top performers are doing great.”
→ Translation: That’s an illegal financial representation.“Once you sign your NDA, we’ll show you our real numbers.”
→ Still illegal. The FDD must come first.“We’ll share sample pro formas from current owners.”
→ If not disclosed in Item 19, those pro formas are unlawful earnings claims.“Call a few franchisees. They’ll tell you how much they make.”
→ Legal only if the franchisor hasn’t coached or staged those conversations.
When regulators catch these tactics, the penalties can include civil fines, cease-and-desist orders, or rescission rights for the franchisee. But most violations are never reported, because franchisees don’t realize they were misled until it’s too late.
What “Insufficient” Item 19 Data Looks Like
Some franchisors include what looks like Item 19 data but it’s so limited it’s almost useless. Watch for:
Only 1–3 outlets or only corporate outlets included in the sample.
“Unaudited management estimates.”
Revenue figures without expense breakdowns.
Vague disclaimers like “results not typical.”
If the data doesn’t represent a statistically meaningful portion of the system, or if it omits critical cost information, it’s technically compliant but practically meaningless. Regulators call it “incomplete representation.” Franchisees call it “misleading.”
Context Matters: Gross Sales vs. Actual Profit
Gross revenue is the favorite number in every Item 19 because it looks impressive. But profit is what pays your bills.
Most Item 19s leave out:
Owner salary or draw
Debt repayment
Royalties and marketing fund fees
Rent, insurance, and local advertising costs
A franchise system showing “average gross sales” of $900,000 may have franchisees taking home $30,000 after fees and debt. Don’t confuse top-line with bottom line. Always model your own financials conservatively.
Would you take a job that pays you $30,000 per year without benefits and has you working 80 hours a week?
No?
Then why would you buy a franchise that could put you in that position?
The Franchise Reality Check™
If you remember nothing else about Item 19, remember this:
Franchisors are only allowed to say what they can prove.
Every number you hear must trace back to a line in Item 19. Anything else; in conversation, marketing, or “examples,” violates the Franchise Rule.
Before you sign:
Verify all claims against the written FDD.
Question missing or partial data.
Document any earnings talk that occurs before disclosure.
Consult a franchise attorney or CPA who knows FDD interpretation.
Your due diligence is the only safeguard against creative math.
Franchise Reality Check™ makes no representations or warranties regarding the accuracy or completeness of information provided in this post. Nothing contained herein should be construed as legal, financial, or investment advice. Always consult with qualified professionals before making decisions regarding franchise or business opportunities.
