FDD, Item 19 & Franchise Due Diligence

Before buying a franchise, owners need to understand the Franchise Disclosure Document, financial performance representations, startup costs, working capital needs, and the questions to ask current and former franchisees.

What Item 19 should help you understand

• Whether the franchisor provides financial performance representations.
• Whether results are shown as averages, medians, ranges, or quartiles.
• Whether new and mature units are separated.
• Whether company-owned and franchisee-owned locations are separated.
• Whether closed or underperforming units are excluded.
• Whether profitability is disclosed or only revenue.
• Whether labor, rent, royalties, and marketing fees are included.

Franchise buyer due diligence checklist

What Item 19 is — and isn’t.

Item 19 of the Franchise Disclosure Document (FDD) contains the franchisor’s financial performance representations. It’s the only place in the FDD where the franchisor can present actual unit-level financial data. Not every franchisor includes an Item 19 — though it’s become standard practice for established systems — and the depth and quality vary widely.

Item 19 is a representation, not a guarantee. The performance it shows is what existing franchisees actually achieved, often segmented by maturity, geography, or unit type. It is the most useful single piece of data in the FDD for prospective franchisees, but it requires careful reading.

How to read Item 19 well.

• Look at the sample size. Averages from 200 units are more reliable than averages from 20.
• Look at the inclusion criteria. Does the data include all units? Just franchised units? Just units open at least 12 months? Each cut changes the meaning.
• Look at medians and ranges, not just averages. The average can be skewed by outliers. The top quartile and bottom quartile tell you the spread.
• Look at maturity segmentation. First-year, second-year, mature unit performance are different stories.
• Look at what’s missing. Many Item 19s show gross revenue but not expenses or profit. Knowing what’s not disclosed is as important as what is.

The questions Item 19 won’t answer.

Item 19 typically reports system averages. It won’t tell you:

• What units in your specific market are doing.
• What units run by inexperienced operators look like.
• What the four-wall EBITDA is — many franchisors only report revenue.
• What working capital was required to reach maturity.
• What the dispersion looks like across operator quality.

For these, talk to existing franchisees directly. The FDD lists them.

For franchisors building Item 19.

A strong Item 19 helps recruit qualified franchisees. It builds trust, sets realistic expectations, and reduces the friction in the sales conversation. The work to build it well:

• Clean, consistent data collection from existing franchisees.
• Clear inclusion criteria and segmentation.
• Median and range presentation, not just averages.
• Multiple data cuts: by maturity, by region, by unit type.
• Legal review with franchise counsel for compliance.

Questions prospective franchisees ask.

Should I trust Item 19? It’s a regulated disclosure with significant penalties for misrepresentation. Trust it as a credible average. Don’t treat it as a guarantee of your performance.

What if there’s no Item 19? The franchisor has chosen not to make a financial performance representation. Ask why — the answer is informative. Validate through direct conversations with current franchisees.

How do I project my own unit’s performance? Start with the Item 19 benchmark. Adjust for your specific market, operator experience, and capital structure. Build a downside scenario. If the downside still works, the deal probably works.