Item 19 Exposed: How to Read Franchisee Financial Performance Claims

Item 19 of the Franchise Disclosure Document is the only section where a franchisor can legally make claims about how much money you might earn. It is also the section most likely to mislead you if you don't know how to read it.

Here is the uncomfortable truth: franchisors are not required to include an Item 19 at all. About 30-40% of franchise systems choose to leave it blank. When they do include one, the format, depth, and honesty vary wildly. Some give you a detailed P&L breakdown by quartile. Others give you a single "average" revenue figure with seventeen asterisks leading to disclaimers that gut the number entirely.

Your job is to know the difference.

Why Item 19 Exists (And Why Many Franchisors Skip It)

Before 2008, franchisors used something called an "earnings claim" — a looser standard that allowed for creative accounting. The FTC tightened this into Item 19, requiring any financial performance representation to live here and only here.

If a franchisor's salesperson tells you "our top performers make $500k" but there's no Item 19, that statement is illegal. It's also a massive red flag about the culture of that franchise system. Document it. Walk away.

Franchisors skip Item 19 for three reasons:

• The numbers are bad. If the median franchisee is losing money, publishing that fact doesn't help sell franchises.
• The numbers are inconsistent. High variance between locations makes any "average" meaningless and opens them to litigation.
• Legal caution. Some franchise attorneys advise clients to skip Item 19 entirely to minimize liability, even when numbers are decent.

A blank Item 19 is not automatically disqualifying, but it shifts 100% of the validation burden onto you. You will need to get real numbers directly from existing franchisees — and you will need to talk to a lot of them.

The Anatomy of an Item 19

When a franchisor does provide financial performance data, it typically appears in one of these formats:

The Five Traps Hidden in Item 19

Even a detailed Item 19 can mislead you. Watch for these:

Trap 1: The "Average" Illusion

An average of $1M in revenue sounds great until you realize three corporate-owned locations doing $3M each are pulling up the average while 50 franchisee-owned units average $400k. Always check whether the data includes corporate stores. Always look for the median, not just the mean.

Trap 2: The Survivorship Filter

Item 19 data typically only includes locations that were open for the full reporting period. If 20 units closed mid-year, their disastrous numbers vanish from the dataset. Cross-reference with Item 20 (the list of current and former franchisees) to see how many units closed. If 15% of the system churned last year but the Item 19 looks rosy, you are seeing a filtered reality.

Trap 3: Geographic Cherry-Picking

Some Item 19s report only "company-owned locations in Texas" or "mature markets in the Southeast." If you are opening in Ohio, that data is nearly useless. Check the footnotes for geographic scope. If it is limited, demand validation calls with franchisees in comparable markets.

Trap 4: The "Mature Unit" Qualifier

"Data reflects units open 24+ months." This excludes the painful ramp-up period where most franchisees bleed cash. You need to understand what Years 1 and 2 actually look like. If the Item 19 only shows mature units, you are missing the survival gauntlet you will have to run first.

Trap 5: The Missing Owner Salary

Many Item 19s show "cash flow" or "owner benefit" without clarifying whether that includes a market-rate salary for the owner-operator. If the number assumes you are working 50 hours a week for free, that "profit" is just your unpaid labor. Ask explicitly: does this assume an owner-operator or an absentee owner with a paid manager?

How to Actually Use Item 19

Do not take Item 19 at face value. Use it as a starting point for validation.

Step 1: Identify which quartile you are likely to fall into. Be honest. If you have no industry experience and limited capital, assume bottom quartile until proven otherwise.

Step 2: Build your own pro forma using Item 19 as one input. Layer in local rent estimates, your state's minimum wage trajectory, and realistic labor models. Do not use the franchisor's "estimated initial investment" for ongoing costs — it is always low.

Step 3: Validate with franchisees. Call at least 10. Ask them: "Does the Item 19 reflect your reality?" You will hear the truth.

"The Item 19 is a legal document, not a business plan. It tells you what the franchisor is willing to defend in court. Your job is to figure out what they left out."

When There Is No Item 19

If the FDD has a blank Item 19, you are flying blind — but not helpless.

Request an informal P&L from the franchisor. They cannot put it in the FDD, but many will share "sample" numbers verbally or in a separate document (which they will disclaim heavily). Get it in writing if possible.

Then validate relentlessly. With no Item 19, your franchisee calls are everything. Ask every operator you speak with for their actual revenue, actual expenses, and actual take-home. Some will share. Many will give you directional guidance. A few will show you their books.

If a franchisor refuses to provide any financial guidance and existing franchisees are cagey or negative, that tells you everything you need to know.