Item 19: What You Can and Cannot Say

The Most Powerful (and Most Regulated) Section of Your FDD

Item 19 of the Franchise Disclosure Document is where franchisors are permitted to make financial performance representations to prospective franchisees. It is the only place in the FDD where you can share revenue, profit, or cost data about your franchise system. And if you share financial performance data anywhere else, in a conversation, in a brochure, in a pitch meeting, you are violating federal franchise sales regulations.

That makes Item 19 simultaneously the most powerful franchise sales tool and the most legally sensitive section of your FDD. Understanding exactly what you can and cannot say is not optional. It is the difference between a compliant franchise system and one facing regulatory action.

This is educational information about FDD requirements. It is not legal advice. Work with a qualified franchise attorney when preparing your Item 19.

What Item 19 Actually Is

Item 19 is the Financial Performance Representation section of the FDD. The FTC Franchise Rule does not require franchisors to include financial performance data. It is entirely optional. But if you choose not to include it, you must include a statement that you do not make any financial performance representations.

If you do include it, the FTC requires that the representations be based on a reasonable basis, that you have written substantiation for every claim, and that the assumptions and methodology are clearly disclosed.

The representations can take many forms. Some franchisors disclose average or median gross revenue across all units. Others provide revenue data segmented by geography, unit age, or performance quartile. Some include expense data and profitability metrics. Others include only top line revenue. The format and content are flexible within the FTC's requirements.

What You Can Say in Item 19

The FTC permits the following types of financial performance representations in Item 19, provided you have substantiation:

Historical financial performance of existing units. You can disclose actual revenue, expenses, and profits from company owned or franchisee operated units. This is the most common type of Item 19 disclosure because it is based on real data.

Subsets of unit performance. You can segment your data by relevant categories. For example, you might disclose the average revenue of units that have been open for at least 12 months, or the median revenue of units in a specific geographic region. Segmentation can make the data more meaningful for prospective franchisees evaluating specific markets.

Cost and expense data. If you have reliable cost data across your system, you can include expense ratios, cost of goods percentages, and other operating metrics. This gives prospective franchisees a more complete picture of unit level economics.

Projections or forecasts. The FTC permits forward looking financial representations in Item 19, but the requirements for substantiation are significantly higher. You must have a reasonable basis for the projection and must clearly label it as a projection rather than historical data. Most franchise attorneys advise caution with projections because the substantiation burden is substantial.

What You Cannot Say

The restrictions on financial performance representations are absolute and apply to everyone in the franchise sales process: the franchisor, franchise salespeople, brokers, and anyone acting on the franchisor's behalf.

No financial performance representations outside Item 19. You cannot share revenue, profit, or financial performance data in conversations, emails, presentations, marketing materials, or any other context. If a prospective franchisee asks "how much money will I make?" your answer must direct them to the Item 19 disclosure in the FDD. Period.

No earnings claims if you chose not to include Item 19. If your FDD does not contain an Item 19 financial performance representation, you cannot make any financial performance claims whatsoever. You cannot hint at earnings potential. You cannot share "back of the napkin" numbers. You cannot tell stories about how well your best franchisee is doing.

No supplemental data that contradicts or expands Item 19. You cannot provide additional financial data outside the FDD that goes beyond what is disclosed in Item 19. If Item 19 shows revenue data, you cannot separately share profit data in a conversation.

No unsubstantiated claims. Every number in Item 19 must have written substantiation that you can produce if regulators ask for it. "Our franchisees typically make around $X" is not substantiation. Audited financials, consistent reporting data, and documented methodology are substantiation.

These restrictions exist to protect prospective franchisees from misleading financial representations. The consequences of violating them are severe: state regulatory action, FTC enforcement, franchisee lawsuits, and damage to your franchise system's reputation. Our [franchise sales compliance guide](/blog/franchise-sales-compliance) covers these obligations in greater detail.

The Strategic Value of a Strong Item 19

Despite the regulatory complexity, a well-constructed Item 19 is the single most powerful tool in franchise sales. Here is why.

Serious franchise buyers expect it. According to the International Franchise Association, a significant majority of franchise buyers want to see financial performance data before making an investment decision. Franchise systems that do not provide Item 19 data are at a competitive disadvantage when buyers compare multiple opportunities.

It demonstrates confidence. A franchisor willing to disclose financial performance data is signaling confidence in the unit economics. That confidence transfers to the prospective franchisee and reduces perceived risk.

It accelerates the sales cycle. Without Item 19, prospective franchisees must rely on conversations with existing franchisees (which are hard to verify), industry averages (which may not apply), or guesswork. Item 19 data gives them a concrete basis for financial modeling, which moves the decision process forward.

It filters out poor fit candidates. Clear financial data attracts franchisees whose expectations align with reality and filters out those who are looking for unrealistic returns. This improves franchisee quality and reduces post-sale dissatisfaction.

How to Build a Compelling Item 19

Building a strong Item 19 starts with data collection. If you have been operating company owned locations, you should have clean financial data covering at least 12 to 24 months. If you have existing franchisees, you need a systematic process for collecting their financial data (which should be required in your franchise agreement).

Work with your franchise attorney and accountant to determine the right format for your disclosure. Consider these questions:

What data do you have? You can only disclose what you can substantiate. If your financial records are inconsistent or incomplete, clean them up before attempting an Item 19.

How should you segment? Raw averages can be misleading. Consider segmenting by unit age (mature vs. new), geography (urban vs. suburban), or performance quartile (top 25% vs. system wide). Segmentation provides more useful data and reduces the risk of a prospective franchisee forming unrealistic expectations.

What caveats and assumptions should you include? Every Item 19 should clearly state the methodology, the time period covered, the number of units included, and any significant assumptions. Transparency protects you legally and builds trust with prospective franchisees.

Should you include expenses? Revenue-only disclosures are common but incomplete. Prospective franchisees care about profitability, not just revenue. If your unit economics support it, including expense data or profitability metrics makes your Item 19 significantly more compelling.

Common Item 19 Mistakes

Using Item 19 data verbally without referencing the FDD. Even if you have an Item 19, you must reference the FDD when discussing financial performance. You cannot just quote numbers from memory in a sales conversation.

Failing to update Item 19 data annually. Your FDD is updated annually, and your Item 19 data should reflect the most recent performance period. Stale data undermines credibility and may not meet the "reasonable basis" requirement.

Cherry picking data. Disclosing only your top performing units without appropriate context or segmentation labels creates a misleading picture. State examiners and franchise attorneys scrutinize Item 19 for cherry picking, and prospective franchisees who rely on inflated expectations become unhappy franchisees.

Letting salespeople ad lib. Your franchise sales team must understand exactly what they can and cannot say about financial performance. A single off hand comment about earnings potential can create regulatory exposure and franchise agreement rescission claims. Training on Item 19 compliance should be a core part of your [franchise sales process](/blog/franchise-sales-process).

The Bottom Line

Item 19 is a powerful tool when built correctly and used compliantly. It gives prospective franchisees the financial data they need to make informed decisions, and it gives your franchise system a competitive advantage in recruitment. But it must be prepared by experienced franchise counsel, based on substantiated data, and communicated within the strict boundaries of FTC and state regulations.

If you are preparing to franchise and want to understand how Item 19 fits into your overall FDD strategy, [see how our development process works](/how-it-works) and how we approach financial disclosure.