Item 19 of the Franchise Disclosure Document is where franchisors optionally disclose financial performance data about their existing units, including revenue, profit, expenses, or other metrics. It is arguably the most important item in the FDD when evaluating whether a franchise investment makes financial sense, yet approximately 40% of franchisors include no Item 19 at all, and many of those that do include it present data in ways that require careful interpretation. At Lopes Law LLC, Item 19 analysis is a central part of every FDD validation review we conduct.

This guide covers what Item 19 is, what franchisors are permitted to include, what it does and does not tell you, how to read it accurately, and the legal implications of authorized versus unauthorized financial performance claims.

What Is Item 19 in the FDD?

Item 19 is the section of the Franchise Disclosure Document governed by the FTC Franchise Rule (16 C.F.R. Part 436) that covers financial performance representations. The FTC Franchise Rule permits franchisors to make financial performance representations in Item 19, but does not require them. A financial performance representation, or FPR, is any statement about actual or projected revenues, sales, income, or profit of existing or potential franchise outlets.

The FTC Franchise Rule sets specific requirements for how FPRs must be presented when they are included. They must have a reasonable basis, they must be substantiated, they must not be misleading, and they must clearly disclose the time period covered, the number of outlets that achieved the results, and the material assumptions underlying any projections. Violations of these requirements can give rise to federal and state franchise fraud claims.

Item 19 can include many different types of data: gross revenue averages, median sales figures, net profit information, cost ratios, percentage breakdowns of systemwide performance, or any other financially relevant metric the franchisor chooses to disclose. The presence, absence, and quality of Item 19 data tells you a great deal about a franchise system’s transparency and the financial reality of operating within it.

What Does Item 19 Include When Franchisors Provide It?

When franchisors provide Item 19 data, the content varies widely by system. The most common types of disclosures include:

• Gross sales averages: The average annual gross revenue across some or all operating units. This is the most commonly provided figure and the most commonly misinterpreted. Average gross sales tell you nothing about profitability without corresponding expense data.
• Median sales figures: The performance of the middle unit when all units are ranked by revenue. Median is generally more useful than average because it is not skewed by outlier performers at the top of the system.
• Percentage of units above and below average: This figure is essential for context. If the average annual revenue is $800,000 but only 35% of units achieved that figure, the average is meaningless as a benchmark for a prospective investor.
• Expense ratios and cost breakdowns: Some franchisors include labor costs, cost of goods sold, occupancy costs, and other operational expenses. When provided, this data is the most useful for projecting profitability, because gross sales without expenses cannot tell you whether the business makes money.
• Net profit or adjusted EBITDA data: The most transparent franchisors include bottom-line profitability information. This is relatively uncommon but represents the most complete and useful disclosure for an investor.
• Performance subsets: Many Item 19 disclosures break the system into segments: units open more than 2 years vs. newer units, company-owned units vs. franchisee units, units in certain geographic markets vs. others. Subsets can be useful, but they can also be used to present selectively flattering data.

At Lopes Law LLC, we analyze Item 19 by comparing the franchisor’s disclosed data against industry benchmarks for the franchise category. If a quick-service restaurant franchisor reports average unit volumes of $900,000, we compare that figure to the category average and identify where the system falls relative to publicly available data from other systems in the same segment. This comparison gives our clients a realistic sense of whether the Item 19 data represents strong, average, or below-average performance for the category.

What Happens When There Is No Item 19?

Approximately 40% of franchisors do not include Item 19. When Item 19 is absent, the franchisor has made no authorized financial performance representations to you. This has a significant legal implication: any verbal earnings claims made by the franchisor, its sales representatives, or its franchise brokers are unauthorized earnings claims that violate the FTC Franchise Rule.

You cannot rely on unauthorized earnings claims, and relying on them does not give you legal recourse if actual performance does not match what was claimed verbally. The FTC Rule is explicit: if it is not in Item 19 (or in a separate written document complying with the Rule’s disclosure requirements), it is not an authorized financial performance representation, and you should not treat it as one.

When there is no Item 19, you can still gather financial information through franchise validation, which involves contacting existing franchisees directly. Existing franchisees can share their own financial performance with you voluntarily. This process is legal and valuable, but requires you to ask the right questions and interpret the answers carefully.

How to Read an Item 19

Reading Item 19 accurately requires several layers of analysis. Working through them systematically will help you extract the most meaningful information from what is often a complex presentation:

Step 1: Identify the universe of data

Is the data drawn from all operating units, or only a subset? Data that covers the entire system gives you a complete picture. Data drawn from a selected subset (for example, only units open more than 3 years, or only company-owned locations) is less representative and requires additional scrutiny. Compare the number of units in the Item 19 dataset to the total number of operating units disclosed in Item 20 of the FDD.

Step 2: Compare average to median

If the average annual gross revenue is materially higher than the median, a small number of high-performing outliers are pulling the average upward. The median, representing the performance of the unit in the exact middle of the distribution, is a better benchmark for what a typical franchisee can expect. Always ask: what percentage of units achieved or exceeded the stated average?

Step 3: Identify what costs are excluded

Revenue data without expense data is of limited value. If Item 19 shows gross revenue but not net profit, you need to independently estimate your operating costs to model profitability. Key costs often excluded from Item 19 revenue figures include royalties, marketing fund contributions, occupancy costs, labor, and loan service on the initial investment. A gross revenue figure of $1 million means something very different with a 25% operating margin than with a 10% operating margin.

Step 4: Identify the time period and recency

Item 19 data is historical. It reflects past performance, not future projections. The data must be from a period that is reasonably current. Item 19 data that is more than 18 months old should prompt questions about why more recent data was not included.

What Item 19 Does NOT Tell You

Item 19, even a comprehensive one, cannot tell you everything you need to know about the financial viability of a specific franchise unit. The things it does not tell you are just as important as what it does tell you:

• Your local market conditions: System averages include units in a wide range of geographic markets, some more favorable than others. Your specific location’s demographics, competition, and traffic patterns are not reflected in systemwide data.
• Your personal management ability: Franchise performance varies significantly based on owner-operator involvement and management quality. Item 19 averages include both excellent and poor operators. Your performance will depend partly on factors unique to you.
• Startup costs and initial investment period: Item 19 data typically reflects stabilized operations. The first 12 to 18 months of operation, when most franchises are ramping up, are often excluded or underrepresented in the data.
• The impact of franchisees who left the system: If struggling franchisees closed their units before the Item 19 data period, their performance is not included. This survivorship bias makes the data look better than the full picture warrants.
• Costs that are excluded from the financial summary: The costs not included in the Item 19 analysis must be identified by reading the fine print disclosures accompanying the data.

Understanding what Item 19 does not tell you is essential for building a realistic financial model. At Lopes Law LLC, our FDD validation review includes a pro forma financial model that combines Item 19 data with estimated operating costs based on your specific market and location, giving you a more complete picture than Item 19 alone provides.

How to Use Item 19 Alongside Franchise Validation

Item 19 is a starting point, not an endpoint. The most effective approach uses Item 19 data as the foundation for targeted questions during franchise validation calls with existing franchisees. When you have Item 19 data in hand, you can ask existing franchisees to confirm, contextualize, or challenge the systemwide numbers with their own experience.

Specific questions to ask existing franchisees after reviewing Item 19 include: Does the disclosed average revenue match your experience? What major costs are not captured in the Item 19 disclosure? How long did it take to reach the systemwide average? What would you tell a prospective buyer who is relying on the Item 19 numbers to make their investment decision? Have there been any recent changes to royalties, fees, or operational requirements that would materially affect those numbers going forward?

At Lopes Law LLC, we provide clients with a franchise validation script as part of the FDD validation review process, including questions specifically designed around the Item 19 data in that particular FDD. The goal is to help clients use the validation process to pressure-test the financial data before they commit.

Red Flags in Item 19

Certain patterns in Item 19 should prompt heightened scrutiny or a direct conversation with the franchisor before you proceed:

• Data from only the top-performing quartile, with no disclosure of the full system distribution. This is cherry-picking and is one of the most common ways Item 19 data misleads prospective franchisees.
• Revenue data only, with no expense information. Without cost data, you cannot calculate whether the business generates profit at the stated revenue level.
• Statistically small sample sizes. Item 19 data drawn from 15 out of 250 units is not representative of the system. Ask why the remaining 235 units are excluded.
• Material differences between systemwide and subset data without clear explanation of why the subset was chosen and what it represents.
• Projections rather than historical data. Forward-looking projections are permitted under the FTC Rule if they have a reasonable basis, but they carry more risk than historical actuals and should be scrutinized carefully.
• Data that is unusually old. If the Item 19 data is from two or more fiscal years ago, the disclosure timing may be approaching the deadline for a required FDD update, which itself may indicate the system is in transition or facing challenges.

When we identify red flags during an FDD validation review at Lopes Law LLC, we do not recommend that the client automatically walk away. Instead, we help the client formulate specific questions for the franchisor that address the identified concerns. A franchisor that provides transparent, detailed answers to difficult Item 19 questions is demonstrating the kind of openness that is a positive sign for the franchise relationship. A franchisor that deflects or refuses to answer is providing its own kind of answer.

A Client Scenario: Two FDDs, Two Very Different Item 19s

Consider two franchise opportunities a client was evaluating simultaneously: both in the health and wellness space, both with similar initial investment requirements of approximately $250,000 to $350,000.

The first FDD had a robust Item 19. It disclosed gross annual revenue, median performance, the percentage of units above and below average, a breakdown by years in operation, and a simplified income statement showing average labor, occupancy, and cost of goods percentages for units open three or more years. The data showed a median annual revenue of approximately $620,000, with roughly 48% of units achieving or exceeding that figure. The expense breakdown suggested an average operating margin of approximately 12% to 15% for mature units.

The second FDD had no Item 19. During a discovery day, the franchise developer enthusiastically shared a “sample P&L” showing projected annual revenue of $800,000 and a 20% profit margin. He described it as “typical for our top performers.” That document was not in the FDD.

The first franchise offered transparency that allowed our client to make an informed investment decision. The second franchise’s oral projection was an unauthorized earnings claim and could not be relied upon legally. More practically, without authorized Item 19 data, our client had no benchmark against which to validate the projected numbers. We advised him to decline the second opportunity unless the franchisor was willing to substantiate the projection in writing with supporting data from existing franchisees, which they were not willing to do.

The Legal Significance of Item 19 Claims

The FTC Franchise Rule’s framework for Item 19 has significant legal consequences for both franchisors and franchisees. Franchisors who make financial performance representations outside of Item 19, whether through oral claims, emails, slide presentations, or broker materials, are violating the FTC Rule. This exposes them to FTC enforcement actions and, in states with franchise relationship laws, to private claims by franchisees.

For franchisees, the practical implication is clear: only financial performance representations disclosed in Item 19 or in a separate written document complying with the FTC Rule can be legally relied upon. If you invest based on numbers that were not in Item 19, you have limited legal recourse if those numbers prove inaccurate.

Conversely, if an Item 19 contains materially false or misleading information, you may have claims under the FTC Franchise Rule, state franchise acts, and state fraud statutes. These claims are most viable when the franchisor knew the disclosed data was misleading, for example by using selective samples or presenting averages that significantly overstate typical performance.

State franchise registration states (including California, Illinois, Maryland, Minnesota, New York, and Virginia) provide additional protections beyond the federal FTC Rule. In these states, the franchise examiner reviews the FDD, including Item 19, before the franchisor is permitted to sell franchises in the state. A misleading Item 19 that passes federal FTC requirements may still face challenge from a state examiner during the registration process.

Frequently Asked Questions About Item 19

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For related guidance on understanding the FDD, read our posts on what is a Franchise Disclosure Document, what an FDD review includes, and how to conduct franchise validation.