Decoding Item 19: How to Evaluate Earnings Claims in a Franchise Disclosure Document

Item 19 is one of the most important parts of a Franchise Disclosure Document. These tips will help you understand earnings claims and make smarter franchise decisions with confidence.

When you’re exploring buying a franchise, one of the most intimidating hurdles can be the legal paperwork. And among those documents is the Franchise Disclosure Document (FDD), a hefty, legally mandated report that can look more like bedtime reading for a lawyer than something a future business owner should feel excited about. But hidden within those dense pages is one of the most valuable tools a franchisee has at their disposal: Item 19.

If you’re new to franchising, you might be wondering: What is a franchise disclosure document? How do I read one? And how can I tell if a franchise is financially worth my time? This guide answers those questions and breaks down how to read and evaluate Item 19, the section that offers insight into potential earnings. Whether you're exploring your first franchise opportunity or comparing a few, understanding how to interpret this section can help you move forward with confidence. 

What is a franchise disclosure document, and why do I need one?

The franchise disclosure document is a legal document required by the Federal Trade Commission (FTC) under the Franchise Rule. Every franchisor must provide this document to prospective franchisees at least 14 days before any agreements are signed or money changes hands. It contains 23 items (or sections) that outline everything from fees and obligations to training programs and financial history.

So, what is a franchise disclosure document really meant to do? It exists to protect prospective franchisees by promoting transparency and standardization. Before this rule, people often entered franchise agreements without a full picture of what they were getting into. Today, the FDD gives you the information you need to compare franchise opportunities and make informed decisions. No fluff, just facts.

Why is the franchise disclosure document important?

The FDD is your legal and financial roadmap to a franchise opportunity. It spells out the franchisor’s obligations, your responsibilities, and what kind of support you can expect. It also reveals potential red flags, such as lawsuits, bankruptcies, or high turnover rates among franchisees.

Think of it as the difference between buying a used car with a full inspection report versus one without. Without an FDD, you’re flying blind. With it, you have the power to ask smart questions, spot inconsistencies, and understand exactly what you're signing up for. It helps ensure that your investment aligns with your goals and risk tolerance. 

What does Item 19 of a franchise disclosure document cover?

Item 19 is officially known as the Financial Performance Representations section. It provides financial data about how existing franchise locations have performed in the past. This section might include numbers like average gross sales, median profits, or performance ranges across various locations. It’s often the first thing prospective franchisees look for—and for good reason.

It’s important to note that Item 19 is optional. Some franchisors choose not to include it, which can be a red flag or simply a strategic choice. Those who do include it are legally required to back up their claims with real data and reasonable assumptions. That means if a franchisor says, “Our average location earns $800,000 per year,” they must disclose how many locations were used in that calculation, what the highest and lowest earners made, and what assumptions underlie the claim.

However, keep in mind that Item 19 might only show gross revenue. Understanding the difference between gross revenue (total income before expenses) and net profit (what’s left after costs) is key. If the numbers look great but exclude rent, payroll, or marketing costs, they can give a misleading picture of actual take-home income. 

What should I look for within Item 19 of an FDD?

Not all Item 19s are created equal. Some are detailed, transparent, and helpful. Others are vague, cherry-picked, or outdated. Here’s how to tell the difference.

Start by looking at how many franchise locations were included in the data. If the company has 200 locations but only shares data from 30, that’s worth questioning. Were those 30 high performers? Were others excluded? Why were they excluded? A good Item 19 will explain its methodology clearly and offer footnotes for context.

Next, look at the time period the data covers. Numbers from five years ago won’t help you understand today’s market. Look for recent data, preferably from the last full calendar year.

It also helps to understand what’s included—and excluded. Are these numbers before or after expenses? Do they account for regional cost differences? If a franchisor lists average revenue but omits expenses like rent, staff wages, or marketing, your actual profitability could look very different from the figures you see in front of you.

Finally, check whether the data reflects markets similar to your own. A frozen yogurt franchise might thrive in southern California but perform differently in Minnesota. Look for geographic breakdowns in Item 19, and if you don't see them, then ask for them directly. 

What questions should I ask about Item 19?

Even the clearest Item 19 should naturally raise some follow-up questions, and asking the right ones shows you're serious while also helping you protect your investment. You’ll have plenty of questions on your own, but here are a few places to start during your conversation.

Ask questions about the data

Start by asking, “How many locations are included in these figures?” Averages based on a handful of locations aren’t very meaningful. You’ll also want to know, “What time period does this data cover?” and “Are these numbers before or after expenses?” That last one is especially important, because two franchises might report the same revenue, but one could have much higher costs. (And you might also want to ask why one might have much higher costs!)

Ask questions about the context

Ask what contributed to high and low performers. Were they in different regions? Did they benefit from local marketing or higher foot traffic? You might also ask, “How do these numbers compare to locations in my area?” or “What expenses should I expect that aren't reflected here?” Understanding what’s typical and what’s exceptional can help you develop realistic expectations for your potential franchise’s performance.

Ask questions about support

Ask what kind of support is available to help you hit similar numbers. “What training or marketing help do you provide?” and “What are the most common reasons locations underperform?” are good places to start. Don’t be shy about asking to speak with current franchisees, especially ones in similar markets. Any reputable franchise will welcome that kind of conversation. (For instance, Spherion maintains a robust library of franchisee profiles, so potential franchisees can hear what success really looks like from the people living it.)

And whenever possible, make sure you get the answers to all your questions in writing! This helps you when you’re reviewing the different franchises you’re considering, and it also provides stability for future conversations with your franchisor. 

Do I have to have a finance background to understand Item 19?

Not at all! While some comfort with business terminology is definitely helpful, you don’t need an MBA or CPA to make sense of Item 19. Many franchisees come from backgrounds in education, healthcare, the military, or corporate jobs, so you’re likely more prepared than you think.

Think of it this way: if you’ve ever managed a household budget, planned a vacation within a spending limit, or weighed the pros and cons of a big purchase, you’ve already used the same skills. You don’t need to understand every accounting term; you just need to feel comfortable asking what the numbers mean and how they apply to you. The key is to focus on a few core concepts, like the difference between gross and net income, or how expenses can impact your take-home pay. And if anything seems confusing or too good to be true, that’s your cue to pause and dig deeper. Trust your instincts and don’t be afraid to speak up. 

Remember: This is your investment, and you have every right to understand it fully.

Who can help me understand an FDD and Item 19?

If you still feel overwhelmed, just know that you don’t have to go it alone. There are a number of professionals who specialize in helping potential franchisees understand what’s in front of them.

Start with a franchise attorney. These professionals understand how FDDs work, what language matters, and what potential legal risks to look for. Then consider hiring an accountant who’s worked with franchise businesses before. They can help interpret financial data, model potential outcomes, and ask the right questions about profitability.

You might also find value in working with a franchise consultant or mentor—someone who’s walked this path before. At Spherion, our team includes experts like Dan Brunell, who help prospective franchisees navigate these early decisions with confidence.

Whatever route you choose, be sure you’re working with someone who specifically knows the franchise world. A general business advisor may not understand the unique dynamics of a franchised operation.

Make sure you put in the time with a franchise disclosure document

Understanding the franchise disclosure document—especially Item 19—is one of the most important steps in evaluating a franchise opportunity. If you take the time to review Item 19 with care and curiosity, you’ll find that it’s not as daunting as it first seems. Think of it as a way to invest in your own confidence. The better you understand the path ahead, the better prepared you’ll be to build something lasting.

So ask questions, seek expert guidance, and approach your franchise journey informed. 

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