Item 19 in the Franchise Disclosure Document (FDD) is one of the most scrutinized sections for prospective franchisees. A strong, transparent and legally compliant Item 19 can be the key to attracting serious candidates while maintaining trust and credibility.  In this article,  Charles Internicola — founding partner of  Internicola Law Firm — shares his insights on what makes an Item 19 compelling, compliant and a powerful sales tool. Telling a Compelling Economic Story A well-crafted Item 19 should go beyond just listing financial numbers; it should paint a clear picture of the economic potential of the franchise. Prospective franchisees want to see not only revenue but also profitability trends and cost structures. "On the compelling front, an Item 19 must reflect the economic story and opportunity that a franchise offers,” Internicola said. “Generally, this means that the Item 19 should include data that allows a franchise buyer to understand sales and sales trends, costs — including data about cost of goods sold, profitability potential and ROI potential.” Maintaining Compliance and Clarity Regulatory compliance is just as critical as the financial data itself. Franchisors must ensure their Item 19 disclosures adhere to federal and state franchise laws while also avoiding misleading or ambiguous claims that could create legal risk. "On the compliant front, an Item 19 must be representative of the franchise opportunity and should be structured with a clear set of definitions and clarity as to the data being reported,” Internicola said. “Ambiguity and the potential for misrepresentations must be avoided.” Balancing Transparency and Protecting Sensitive Data While transparency in financial disclosures is essential, franchisors must also be mindful of protecting proprietary business data. Striking this balance requires carefully selecting what financial metrics to include. "Item 19s are public, and so protecting sensitive information is extremely difficult. However, these interests do not need to conflict as most Item 19s relate to the presentation of historical financial data,” said Internicola. “Beyond sales and profit and loss type metrics, sensitive data may include deeper dive KPIs that a franchisor may elect to not make public. These KPIs may include data points about sales process, customer acquisition and conversion costs, call center efficiency and other metrics.” Avoiding Common Pitfalls in Item 19 Disclosures One of the biggest mistakes franchisors make is presenting an Item 19 that fails to address the real concerns of franchise candidates. A generic or overly broad disclosure may not provide the insights potential franchisees need to make an informed decision. "They are not connecting the dots between the obvious and genuine questions that franchisee candidates have with the data presented in their Item 19,” Internicola said. “Too often franchisors are applying a cookie-cutter approach to their Item 19 and are missing out on the opportunity to develop and tell a comprehensive economic story about their franchise offering.” Using Item 19 To Stand Out from Competitors A well-prepared Item 19 can serve as a competitive advantage by showcasing what makes a franchise unique. Franchisors should aim to provide a deeper level of financial transparency and operational insights than their competitors. "Develop clear definitions, and provide clear data points about sales, gross profit and, potentially EBITDA,” said Internicola. “Additionally, franchisors should focus on deeper dive metrics unique to their franchise, including data points about average sales transactions, conversion ratios, repeat customers and other data points that differentiate their sales process.” Strengthening Credibility With Franchisee Validation Ultimately, the credibility of an Item 19 is reinforced by the experiences of existing franchisees. If their real-world financial results align with the disclosures, it builds confidence for prospective buyers. "Existing franchisee validation is critical to the sales process,” Internicola said. “Significant sales momentum is achieved when existing franchisees validate a franchisor’s Item 7 estimates and Item 19 financial performance representations.” A well-structured Item 19 is more than just a regulatory requirement — it’s an opportunity to showcase the real financial potential of a franchise. Done right, it provides transparency, builds trust and gives prospective franchisees the confidence they need to move forward. Growing and selling franchises is difficult. No great franchise did it alone. Want to learn more about how 1851 helps franchisors grow their franchises with confidence? Visit  www.1851growthclub.com and see what we can do for you.