Item 19 of a Franchise Disclosure Document is the financial performance representation.
Inside an FDD, which items matter covers the document as a whole. This is about the single item that governs what a franchisor may say about money anywhere at all.
Permitted, and not required
The Rule (opens in a new tab) allows a financial performance representation and does not demand one. A franchisor may publish detailed figures with a reasonable basis behind them, or may publish none at all. Both are compliant, and the difference between them is not a difference in candour.
The preamble is fixed wording, not a summary
Every Item 19 opens with a prescribed preamble, and the Federal Trade Commission's compliance guide says it must be included word-for-word as set out, with no modification in language or punctuation (opens in a new tab).
That universal preamble states the rule itself. The Commission permits a franchisor to give information about the actual or potential financial performance of its franchised or franchisor-owned outlets, if there is a reasonable basis for the information and if the information is in the disclosure document.
A franchisor making no representation must add a second prescribed preamble saying so, also word for word. An empty Item 19 is therefore not an omission or an oversight. It is a specific statement, in wording the franchisor did not choose and cannot soften.
Reasonable basis, and substantiation in writing
Where a franchisor does make a representation, it must have a reasonable basis and written substantiation for it at the time the representation is made. Substantiation is not something you are handed. It is something that must exist and be producible, which is a different and more useful standard.
- Which outlets were measured, and whether they are franchised, franchisor-owned, or from an affiliated system with similar operations.
- How many outlets are in the group that achieved the stated level, and how many are in the entire system.
- How many outlets in that group actually supplied the data underlying the representation.
- What time period is covered, and when the stated level of performance was achieved.
Those are not a sceptic's questions added from outside. They are disclosures Item 19 itself requires, which is the Rule conceding that a number without them cannot be interpreted by anybody.
Silence outside Item 19 is the law rather than modesty
A franchisor that makes no Item 19 representation is prohibited from making any such representations outside the confines of the disclosure document (opens in a new tab), and the guide says the prohibition reaches any advertisement and any website directed at prospective franchisees.
Making such a representation anyway is itself an independent violation of the Rule. So a franchisor with a blank Item 19 publishing earnings figures on its recruitment pages is not being helpfully informal in a grey area. It is in breach, and the breach exists separately from whether the figures are true.
What that means for a system with no disclosure document
A company that has not issued a disclosure document has no Item 19, and therefore no lawful place to publish any financial performance information at all. The correct quantity for it to publish is none.
That is the position on this site, and it is worth stating as a rule rather than as a preference. No financial performance figure of any kind appears anywhere on this property, because the only lawful place for one to appear does not yet exist.
How to read an empty Item 19
An empty Item 19 says nothing about quality in either direction. A young system may have too few units over too short a period to have a defensible basis for saying anything. An established system may decline for reasons of its own.
What it does tell you is where to look instead. Item 20 carries the outlet tables for the last three fiscal years, including terminations, non-renewals, transfers, and outlets that ceased operations for other reasons, and those are facts about the system rather than projections about you. How to check a franchisor before you sign covers reading them.