What Is FDD Item 19?

Item 19, Financial Performance Representations, addresses return on investment, showcases just how profitable a franchise owner can expect to be and how transparent the franchisor is.

By 1851 Staff1851 Staff Contributions

Updated 11:11AM • 04/14/22

When a prospective franchisee sets out on the path to joining a brand, their intent is to own a business in a given territory and be successful. With this goal in mind, any prospective franchisee considering joining a brand should carefully review Item 19: Financial Performance Representations. This section, also known as the Earnings Claim, addresses return on investment and showcases just how profitable a franchise owner can expect to be.

While the data in Item 19 is incredibly helpful to have, a prospective franchisee should be aware that a franchisor is not required to provide financial performance representations. And if the franchise does provide information in Item 19, it’s also important to note that there is no standard for how this information should be represented. The information listed can vary from brand to brand.

If a franchise does provide the financial performance representations in its Item 19, the section can be a great way for a franchisee to measure what they’ve heard throughout the entire sales and exploration process by seeing the numbers on paper. The section is more or less a barometer against which to measure the information they have heard verbally over the course of the sales process. The franchisee can then study the final document from the brand to make their decision. Additionally, Item 19 allows for a shorter due-diligence process because franchisors are providing information about highly efficient units — such as those located in malls, kiosks, strip malls and different size restaurants — which allows a prospective franchisee to know what footprints are the most productive and seek out that same model.

And while Item 19 isn’t necessarily indicative of future performance, it is a telling benchmark for what the prospective franchisee might expect once they become a franchisee. The section builds transparency and is an important data point for prospective franchisees to understand the brand’s business model. Ultimately, it can help them put together their business plan.