FDD Item 20 is the section of the Franchise Disclosure Document that shows you the franchise system’s actual track record in numbers. It provides tables showing how many franchise units opened, closed, were transferred, and were reacquired by the franchisor over the most recent 3 fiscal years. More importantly, Item 20 includes contact information for every current and former franchisee, giving you the ability to verify the franchisor’s claims directly with the people who have lived the franchise experience. At Lopes Law LLC, we consider Item 20 one of the three most important sections of any FDD, alongside Item 3 (litigation) and Item 19 (financial performance), because the outlet data tells you whether the franchise system is growing, shrinking, or churning through operators.

This guide explains how to read the Item 20 tables, what the numbers mean, which patterns should concern you, and how to use the contact information for effective franchise validation.

What Does the Item 20 Table Look Like?

Item 20 is required to present outlet data in a standardized table format covering the most recent 3 fiscal years. Here is a typical structure showing how the data is organized:

Category	Year 1	Year 2	Year 3
Outlets at Start of Year	180	195	205
Outlets Opened	25	22	18
Terminations	3	5	8
Non-Renewals	1	2	3
Reacquired by Franchisor	2	1	4
Ceased Operations (Other)	4	4	6
Transfers	8	12	15
Outlets at End of Year	195	205	202

Even from this simplified example, several patterns are visible. New openings are declining (25 to 22 to 18). Terminations are increasing (3 to 5 to 8). Transfers are accelerating (8 to 12 to 15). Net growth went from positive 15 in Year 1 to negative 3 in Year 3. This system is showing signs of stress that warrant serious investigation.

How Do You Calculate the Key Metrics from Item 20?

At Lopes Law LLC, we calculate four key metrics from Item 20 data that provide a comprehensive picture of the franchise system’s health.

Closure Rate

The closure rate measures the percentage of outlets that ceased operations during the year from all causes (terminations, non-renewals, reacquisitions, and ceased for other reasons). Using the Year 3 data from the example above: (8 + 3 + 4 + 6) / 205 = 10.2%. A closure rate above 5% per year warrants investigation. Above 8%, we treat it as a significant red flag. The example system at 10.2% is in concerning territory.

Net Growth Rate

The net growth rate measures whether the system is actually expanding. It is calculated as: (outlets at end of year minus outlets at start of year) / outlets at start of year. In Year 3: (202 – 205) / 205 = -1.5%. A negative net growth rate means the system is shrinking. While a single year of negative growth can result from temporary factors, two or three consecutive years of negative growth indicate a systemic problem.

Transfer Rate

The transfer rate measures the percentage of outlets that changed hands during the year: transfers / outlets at start of year. In Year 3: 15 / 205 = 7.3%. A high transfer rate can indicate that franchisees are trying to exit the system, which may signal dissatisfaction with the franchisor, below-expected financial performance, or both. However, transfers in a mature system can also reflect natural lifecycle events like retirements.

Turnover Rate

The total turnover rate combines closures and transfers to measure total churn: (all closures + transfers) / outlets at start of year. In Year 3: (21 + 15) / 205 = 17.6%. This means that roughly 1 in 6 franchisees either left the system or sold their franchise in a single year. A turnover rate this high suggests the franchise relationship is producing outcomes that are causing operators to exit at an elevated rate.

What Are the Major Red Flags in Item 20?

Declining Total Unit Count

If the total number of franchise outlets is declining from year to year, the system is contracting. This means more franchisees are leaving than joining. While temporary contractions can occur during economic downturns or strategic repositioning, three consecutive years of decline is a strong signal that the franchise model is not working for operators.

High Franchisor Reacquisitions

When the franchisor reacquires locations from franchisees at an elevated rate, it may indicate that the franchisor is taking back underperforming territories. In some cases, franchisor reacquisitions occur because the franchisor can purchase distressed units at below-market prices and either resell them to new franchisees or convert them to corporate-owned locations. A high reacquisition rate suggests the franchisor is aware that some locations are struggling and is managing the problem by absorbing them rather than allowing natural attrition.

More Closures Than New Openings

This is the most straightforward red flag. If a franchise system is closing more locations than it opens in any given year, the system is not sustainable at its current trajectory. One year of this pattern might be explained by temporary market conditions. Two or three years indicates a fundamental problem with the franchise model, the market, or the franchisor’s management.

Sudden Acceleration in Closures

If closures jumped from 5 per year to 20 per year, something specific triggered the change. Common triggers include a fee increase, a mandatory remodel program, a change in franchisor leadership, the loss of a key supplier relationship, or a shift in market conditions. Cross-reference sudden closure increases with Item 3 (litigation history) to see if the closures correlate with an increase in franchisee lawsuits.

How to Use Item 20 for Franchise Validation

Item 20 provides contact information for current franchisees and, in a separate list, former franchisees who left the system during the most recent fiscal year. This information is the most valuable due diligence resource in the entire FDD, because it allows you to hear directly from people who have operated the franchise.

At Lopes Law LLC, we guide our clients through a structured franchise validation process that includes contacting at least 8 to 12 current franchisees across different markets and tenure levels, plus 3 to 5 former franchisees. Here are the questions we recommend asking.

Questions for Current Franchisees

• How long have you owned your franchise, and how closely has your actual financial performance matched your expectations going in?
• What was your total actual investment to open (compared to the Item 7 estimates)?
• How would you rate the franchisor’s support on a scale of 1 to 10, and why?
• What is the biggest challenge you face as a franchisee in this system?
• If you could go back, would you invest in this franchise again? Why or why not?
• Do you know of any franchisees who are currently trying to sell their franchise? What are their reasons?

Questions for Former Franchisees

• Why did you leave the franchise system? Was it your choice or the franchisor’s decision?
• What was your financial outcome? Did you sell the franchise, close it, or have it terminated?
• What would you want a prospective franchisee to know before investing in this system?
• Did the franchise performance match what was represented during the sales process?

A Client Scenario: When Item 20 Revealed a Crumbling System

A client engaged our firm to review the FDD for a cleaning services franchise. The sales team had presented the concept as a “rapidly growing” system with “strong unit economics.” The franchise fee was $25,000, and the total investment was approximately $100,000 to $150,000.

When we analyzed Item 20, the data told a different story. Over the 3-year reporting period, the system had gone from 320 units to 285 units, a decline of 11%. In the most recent year, 45 units had ceased operations (a closure rate of 15%) while only 18 new units opened. The transfer rate had also spiked to 12%, indicating that many remaining franchisees were trying to sell.

We cross-referenced this data with Item 3 and found 22 lawsuits filed by franchisees over the same period, many alleging that the franchisor had misrepresented the earning potential of the franchise. Our validation calls with current and former franchisees confirmed that the system’s revenue model had been significantly disrupted by a pricing change the franchisor had implemented 18 months earlier, which undercut franchisees’ ability to maintain profitability in their markets.

Our client did not invest. The Item 20 data, combined with Item 3 litigation patterns and validation feedback, revealed a franchise system in serious decline that the sales materials had presented as growing.

How Does Item 20 Interact with Items 3 and 19?

The most powerful FDD analysis comes from reading Items 3, 19, and 20 together. Item 20 tells you what is happening to the system (growth, contraction, turnover). Item 19 tells you why (financial performance data). Item 3 tells you the consequences (litigation from dissatisfied franchisees).

A franchise system with declining units in Item 20, below-average financial performance in Item 19, and escalating franchisee lawsuits in Item 3 is a system you should approach with extreme caution, regardless of how compelling the sales presentation was. Conversely, a system with steady unit growth, strong financial performance, and minimal litigation presents a fundamentally different risk profile.

At Lopes Law LLC, our $3,000 flat-fee FDD validation review integrates the analysis of all 23 FDD items, with particular emphasis on the interconnected data in Items 3, 19, and 20. We calculate all the metrics described in this guide, identify patterns and red flags, and provide a structured framework for franchise validation calls. For a complete overview, see what to expect from an FDD review.

Frequently Asked Questions About FDD Item 20

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Last updated: March 13, 2026