FDD Item 19: what a franchisor is allowed to tell you about earnings
Item 19 of a Franchise Disclosure Document is the only place a franchisor may state what its outlets earn — and including it is optional. What is in that section, and what is missing from it, tells you more about a franchise than the brochure ever will.
The rule behind the section
Under the FTC's Franchise Rule (16 CFR Part 436) a franchisor must give a prospective franchisee the FDD at least 14 calendar days before any agreement is signed or any payment is made. Financial performance representations belong in Item 19: if a franchisor makes earnings claims anywhere else — a sales call, a brochure, a webinar — while Item 19 is silent, that is a problem with the franchisor, not a helpful shortcut.
Reading Item 19 properly
- Which outlets are in the sample? "Top quartile" or "outlets open more than three years" is a very different population from "all outlets".
- Revenue or profit? Many Item 19s present gross sales only. Gross sales tell you nothing about what an owner takes home.
- Distribution, not just the average. Look for medians, ranges and the share of outlets that reached the stated figure. An average carried by a handful of strong locations is a marketing number.
- Whose costs are excluded? Royalties, advertising funds, rent and labour vary by market; a national average conceals your city.
- No Item 19 at all? Then the franchisor is telling you they will not stand behind any earnings figure. Ask why, and ask existing franchisees instead.
Item 20 is where the truth often hides
Item 20 carries the outlet tables — openings, closures, terminations, transfers, non-renewals — for the past three years, and a list of current and former franchisees with contact details. A brand with strong Item 19 numbers and a stream of terminations and transfers in Item 20 is describing two different businesses. Call the former franchisees; that list exists precisely so you can.
What this means when you are buying an existing franchise
You are buying two things at once: a business, and a contract with a franchisor. Both need checking.
- Transfer approval. The franchisor usually must approve you, may charge a transfer fee, and may require training.
- Remaining term. A franchise agreement with two years left is a different asset from one with ten. Renewal often means signing the current agreement, not the one the seller signed.
- Required upgrades. Remodels and equipment refreshes triggered by transfer or renewal are a capital cost that lands on you, and they are rarely in the CIM.
- Territory. Exclusive, protected, or nothing at all — and what the franchisor may open nearby, including delivery-only formats.
The seller's numbers describe the outlet. The FDD describes the rules the outlet lives under. A pre-screen that reads only the first half is reading half the deal.
Questions buyers ask
Is a franchisor required to include Item 19 earnings figures?
No. Item 19 is optional under the FTC Franchise Rule. What is not optional is where earnings claims may appear: if a franchisor makes financial performance representations at all, they belong in Item 19, supported by a reasonable basis. Claims made in sales conversations while Item 19 is blank are a warning sign.
How long before signing must I receive the FDD?
At least 14 calendar days before you sign a binding agreement or make any payment, under the FTC Franchise Rule (16 CFR Part 436). Use the time: read Item 19 and Item 20 together and call franchisees from the list in Item 20, including the ones who left.
Sources
Related
- Confidential Information Memorandum (CIM) — A CIM is the packet a broker sends once you have signed an NDA: the story of the business, its numbers, its customers and the reason for selling.
- Letter of Intent (LOI) — A letter of intent sets out the deal you and the seller believe you have agreed: price, structure, what is included, and how long you get to verify it.
- Asset sale vs stock sale — In an asset sale you buy the things the business is made of and leave most of its history behind.
Checking a real deal? DealLoupe reads the documents a seller gave you and reports the red flags, the gaps and the questions to ask — before you spend anything on due diligence. See what a pre-screen costs →
Last updated: 2026-08-22