What is Item 19 in a Franchise Disclosure Document?

Item 19 (Financial Performance Representations) is the section of an FDD where a franchisor can legally disclose revenue, profit, or other financial performance data about their franchise units. It is the only place franchisors are allowed to make earnings claims.

Is Item 19 required in an FDD?

No. Item 19 is entirely optional under FTC Rule 436. As of 2023, approximately 71% of franchise systems choose to include Item 19 in their FDD, up from 58% in 2020.

What does it mean if a franchise doesn't include Item 19?

The absence of Item 19 is a significant yellow flag. FranchiseIQ data shows that brands without Item 19 have 31% higher SBA default rates on average. While there are legitimate reasons for omission, the most common reason is that the numbers aren't flattering.

Should I use median or average when reading Item 19?

Always prioritize the median over the average. Averages can be skewed by a small number of top-performing locations. The median tells you what the typical franchisee actually experiences.

How can I verify Item 19 data?

Cross-reference Item 19 data by calling current franchisees (listed in Item 20), checking SBA default rates for the brand on FranchiseIQ, and comparing the disclosed numbers against industry benchmarks for the franchise category.

Why Item 19 Is the Most Important Section of Any FDD (And How to Read It)

What Is Item 19?

Item 19 — formally titled “Financial Performance Representations” — is the only section of a Franchise Disclosure Document where a franchisor is legally permitted to share financial performance data about their franchise units. Revenue, profit margins, average unit volumes, cost breakdowns — if the franchisor wants to tell you what franchisees actually earn, it has to go here.

The FTC created this restriction under Rule 436 to prevent franchisors from making misleading earnings claims during the sales process. Before Item 19 existed, franchise salespeople could (and did) make wild verbal promises about income potential. Now, if a franchisor makes any financial performance claim, it must be in writing, in the FDD, backed by a reasonable basis, and auditable.

Why Only 71% of Franchises Disclose Item 19

Here is the critical detail: Item 19 is entirely optional. A franchisor can legally file an FDD that says nothing more than “We do not make any representations about a franchisee's future financial performance.”

As of 2023, approximately 71% of franchise systems in the FranchiseIQ database include some form of Item 19 disclosure — up from 58% in 2020. This improvement is driven by investor demand: sophisticated franchise buyers now expect to see the numbers, and brands that refuse are losing deals to competitors that disclose.

The 29% that still refuse? Our data from the State of Franchising 2024 report shows they have 31% higher SBA default rates on average. The absence of Item 19 is not proof of a bad franchise — but it is a statistically significant yellow flag.

How to Read Item 19: Median vs. Average

The first thing to look for in any Item 19 disclosure is whether the franchisor reports the median or the average (mean). This distinction is critical.

Average (mean) revenue can be dramatically skewed by a handful of top-performing locations. If a system has 100 units and 5 of them are doing $3M while the rest do $500K, the average will look great — but the typical franchisee experience is much lower.

Median revenue tells you what the middle franchisee experiences. If 100 franchisees are lined up by revenue, the median is the 50th. This is the number you should anchor your financial model to.

Also check: How many locations are included in the sample? If the franchisor has 500 units but the Item 19 only includes data from 200, ask why. Are they excluding new units? Low performers? Certain geographies? The footnotes will tell you — read them carefully.

Red Flags in Item 19 Data

Gross revenue only, no expense data — Revenue is vanity. What matters is what you take home after rent, labor, COGS, royalties, and ad fund contributions.
Only “top quartile” or “top 50%” data — If the franchisor only shows you the winners, they are hiding the losers.
Excluding new units (under 12 months) — This hides the brutal ramp-up period that new franchisees actually experience.
Company-owned units mixed with franchise units — Company stores often have advantages (better locations, more staff, no royalty) that franchisees do not.
No year-over-year comparison — A single year of data tells you nothing about trajectory. Push for multi-year data when possible.

What to Do When There Is No Item 19

If the FDD does not include Item 19, you are not out of options — but you need to work harder:

Call franchisees directly. Item 20 lists every current and former franchisee with contact information. Call 8-10 of them and ask about revenue, expenses, and profitability. Use our 59-point due diligence checklist for the right questions.
Check SBA default rates. FranchiseIQ's SBA data gives you an independent signal. High default rates + no Item 19 = serious red flag.
Ask the franchisor directly. They cannot give you financial data outside the FDD — but you can ask why they chose not to disclose. Their answer is itself informative.
Use industry benchmarks. If you know the category average margins (from disclosed Item 19s of competitors), you can build a rough model even without the specific brand's data.

The Bottom Line

Item 19 is the single most important section of any FDD. A well-constructed Item 19 with median revenue, expense breakdowns, and multi-year trends is the gold standard. The absence of Item 19 is not disqualifying — but it should make you work twice as hard to validate the opportunity independently.

As we noted in our State of Franchising 2024 report: the single most predictive variable for franchise success is whether the franchisor is willing to show you their numbers. Demand transparency — your capital depends on it.