What Is Item 19?
Item 19 is a section in the Franchise Disclosure Document (FDD) that provides an optional financial performance representation (FPR). It may show historical sales, earnings, or other financial data from existing franchise units. This helps prospective franchisees estimate potential revenues and profits before investing.
Not all franchisors include Item 19, as it’s not required by law. When present, it offers valuable insight backed by actual business figures. When absent, you must rely on other information sources to assess the opportunity.
Why Item 19 Matters
The financial performance data helps you evaluate the franchise’s real-world financial results. It reduces uncertainty about how much money you might make or how sales vary across locations.
Without Item 19, you may have a harder time estimating profitability. You’ll rely more on your due diligence, market research, or conversations with franchisees.
What You’ll Find in Item 19
When a franchisor includes Item 19, it typically contains:
- Sales figures: Gross sales generated by franchisees over a specific period.
- Earnings data: Net profits or pre-tax income, sometimes shown as averages or ranges.
- Unit-level data: Performance metrics for individual units, often segmented by geography or store type.
- Expense details: Sometimes, costs like royalties, marketing fees, and operating expenses are outlined to show net returns.
- Historical trends: Results presented over multiple years to show stability or growth patterns.
Example: An Item 19 might report that 75% of franchisees had annual gross sales between $500,000 and $700,000, with an average net profit margin of 15%.
How To Use Item 19 Data
Item 19 offers a snapshot, not a guarantee. Use it to:
- Estimate sales and profits: Compare reported figures against your investment and operating costs.
- Identify variability: Note the range of results to understand risk and consistency.
- Validate franchisor claims: Check if financial data aligns with what you hear from other sources.
- Ask questions: If numbers seem unclear, ask the franchisor for more details or explanations.
Red Flags in Item 19
Watch out for:
- Incomplete data: Missing key financial measures or only showing best-case scenarios.
- Small sample sizes: Data based on very few franchisees may not be reliable.
- No historical trends: Single-year figures can mask variability or downturns.
- Unverified info: Beware if the franchisor refuses to explain how the numbers were calculated.
When Item 19 Is Missing
If the franchisor omits Item 19, they must explain why. Common reasons include:
- The franchise is new with no operating units.
- Sales and earnings vary widely, making averages unreliable.
- Legal or competitive concerns about sharing sensitive data.
In such cases, supplement your evaluation by:
- Talking to existing franchisees about their actual performance.
- Reviewing industry benchmarks for similar businesses.
- Estimating your own financial projections based on market data.
Key Terms Explained
- Franchise Disclosure Document (FDD): A legal document franchisors provide to prospective franchisees containing key information about the franchise.
- Financial Performance Representation (FPR): A statement about sales or earnings from existing franchises. Item 19 is the section where this appears.
- Royalty base: The revenue figure that royalties are calculated on—usually gross sales.
Takeaway
Item 19 provides useful financial data that helps you assess how a franchise performs in practice. Always review it carefully, compare with other sources, and ask questions if anything is unclear. If missing, don’t skip your research—talk to franchisees and check market trends. This approach supports smarter, data-driven decisions on your franchise investment.