Key Takeaways
- Item 19 is optional but powerful – About 66% of franchisors now include financial performance data in their FDD
- Only use data you can prove – Every number needs backup documentation or you face legal risk
- Choose your format wisely – You can show averages, ranges, medians, or historical results
- Context matters more than numbers – Raw data without explanation confuses buyers
- Update annually – Your Item 19 must reflect current, accurate information each year
- Work with a franchise attorney – This disclosure has strict legal rules you can’t ignore
What Is Item 19 in FDD?
Item 19 is the only place in your Franchise Disclosure Document where you can share earnings data.
It’s called the Financial Performance Representation (FPR).
This section tells potential buyers what they might earn as your franchisee.
The catch? It’s completely optional.
You don’t have to include it. But if you do, strict rules apply.
The Federal Trade Commission controls what you can and can’t say here.
Get it wrong and you face serious legal problems.
Get it right and you give buyers the information they need to make smart choices.
With the U.S. franchise industry generating over $674 billion yearly, buyers want financial transparency.
That’s why more franchisors add Item 19 data each year.
Why Should You Include Financial Performance Data?
Let’s be honest.
Franchise buyers want to know one thing above all else.
“How much money can I make?”
If you skip Item 19, you can’t legally answer that question.
Not in sales calls. Not in emails. Not in Discovery Day.
Nowhere.
Your salespeople must stay silent about earnings.
That puts you at a disadvantage.
Franchisors with strong Item 19 data attract more qualified candidates.
Buyers trust brands that share real numbers.
Here’s what I’ve noticed working with new franchise systems.
Brands with Item 19 close deals faster.
Candidates feel more confident signing.
The transparency builds trust from day one.
How to Create Item 19 Financial Disclosure
Creating a solid Item 19 takes careful planning.
You need three things:
- Real data from actual locations
- A reasonable basis for every claim
- Clear written documentation
How to create Item 19 financial disclosure?
Let’s break down each step.
Step 1: Gather Your Financial Data
Start with your corporate locations.
Pull sales reports, profit and loss statements, and tax records.
If you have existing franchisees, ask for their numbers too.
You’ll need at least 12 months of operating history.
More data gives buyers a clearer picture.
The average revenue per franchise in 2023 hit $1,065,000.
But your numbers may look very different.
That’s okay.
Honesty matters more than impressive figures.
Step 2: Choose What to Disclose
You have options here.
Most franchisors pick one of these approaches:
| Format | What It Shows | Best For |
|---|---|---|
| Gross Sales | Total revenue only | New franchisors |
| Net Profit | Revenue minus expenses | Mature systems |
| Ranges | Low to high results | Varied performance |
| Averages | Mean across locations | Consistent results |
| Medians | Middle number | Outlier protection |
Pick the format that tells your story accurately.
Don’t cherry-pick only your best locations.
The FTC requires a reasonable basis for all claims.
Step 3: Add Required Context
Raw numbers mean nothing without context.
You must explain:
- How many locations contributed data
- What time period the data covers
- How you calculated the figures
- Which locations you included or excluded
- Any assumptions you made
For example, did you include only mature locations?
Define “mature” clearly.
Did you exclude any underperforming units?
Explain why.
This context protects you legally.
It also helps buyers understand what they’re seeing.
Step 4: Include Substantiation Language
Every Item 19 needs this statement.
You must offer written proof to any prospect who asks.
The exact language goes something like this:
“Written substantiation for this financial performance representation will be made available to prospective franchisees upon reasonable request.”
Keep all your backup documentation for at least three years.
Organize it so you can find anything quickly.
Franchise Earnings Disclosure Requirements
The FTC has clear rules about what you can and can’t do.
Here’s what matters most.
What You Must Do
- Base every claim on actual historical data
- Have written proof for every number
- Update your Item 19 each year
- Use clear, consistent methodology
- Disclose if results came from corporate or franchise locations
What You Can’t Do
- Make claims outside your FDD
- Use projected or hypothetical numbers
- Cherry-pick only successful locations
- Mislead buyers about typical results
- Forget to include required disclosures
Economic challenges affect franchise earnings.
Over 80% of franchise owners reported lower business earnings recently.
Your Item 19 should reflect current reality.
Not best-case scenarios from years ago.
Common Item 19 Mistakes to Avoid
I’ve seen many franchisors stumble here.
These mistakes cause the most problems.
Using projected earnings
You can’t estimate what franchisees “should” make.
Only historical data counts.
Mixing location types
Corporate stores often perform differently than franchised ones.
Keep them separate or clearly label the mix.
Forgetting footnotes
Every number needs an explanation.
Don’t leave buyers guessing.
Outdated information
Last year’s data belongs in last year’s FDD.
Update everything annually.
Verbal claims
Your sales team can only discuss what’s written in Item 19.
Nothing more.
Train them carefully on this rule.
Working with experienced franchise consultants helps you avoid these traps.
Common Item 19 Mistakes to Avoid
What Makes a Strong Item 19?
The best Item 19 documents share common traits.
They’re clear, honest, and useful.
Here’s what works:
- Multiple data points – Show averages AND ranges AND medians
- Different segments – Break down by location age, size, or region
- Expense information – Help buyers understand true profit potential
- Year-over-year trends – Show how performance changed over time
- Clear definitions – Explain every term you use
Consider what buyers actually want to know.
The average initial investment ranges from $150,000 to over $1 million.
That’s a huge commitment.
Buyers deserve transparency about potential returns.
Should You Skip Item 19?
Some franchisors choose not to include financial data.
That’s legal.
But it has consequences.
You lose the ability to discuss earnings at all.
Buyers may wonder what you’re hiding.
Competitors with Item 19 data look more trustworthy.
When does skipping make sense?
- Your system is brand new with limited data
- Results vary too wildly to represent fairly
- You’re reorganizing after poor performance
Even then, plan to add Item 19 as soon as possible.
Build your financial qualification standards around real performance data.
Working With Your Attorney
This isn’t a DIY project.
Item 19 carries real legal risk.
One wrong claim can trigger FTC action.
Or worse, franchisee lawsuits.
Your franchise attorney will:
- Review all data for accuracy
- Draft legally compliant language
- Add required disclosures
- Check for potential problems
- Update documentation yearly
Budget for this legal work.
It’s not optional.
Consider it part of the real cost of franchising your business.
What This Means for You
Creating Item 19 takes effort.
But it pays off.
Strong financial disclosure attracts serious buyers.
It builds trust before the first phone call.
And it protects you legally.
Start gathering your data now.
Talk to your franchise attorney.
Build a system for tracking performance going forward.
Your Item 19 will only be as good as your records.
Need help converting your business processes into franchise-ready systems?
Contact our team to discuss your Item 19 strategy.
Frequently Asked Questions
1. Is Item 19 required in every FDD?
No. Item 19 is completely optional. But if you include any financial performance claims, they must appear here. You cannot discuss earnings anywhere else.
2. Can I show projected earnings in Item 19?
No. The FTC requires historical data only. You cannot use estimates, projections, or hypothetical numbers. Every figure must come from actual operating results.
3. What if my locations perform very differently?
Break your data into segments. Show results by region, location age, or size. This gives buyers a clearer picture without misleading them about typical performance.
4. How often must I update Item 19?
Annually, at minimum. Your FDD renewal must include current data. If circumstances change significantly mid-year, consult your attorney about amendments.