Franchise Item 19 Explained: What a Buyer Holds Against Your Numbers
A buyer of your franchise may read your books and your franchisor's disclosure document side by side, and Item 19 of the franchise disclosure document is where the document talks about how outlets have performed. It is headed "Financial Performance Representations," and it is where a franchisor may state how its outlets have performed, or say that it states nothing (16 CFR 436.5(s)). In short, Item 19 is the franchisor's statement about the system, not about your location. Our article on what a franchise disclosure document is covers the whole document. This one takes Item 19 alone.
What is Item 19 in a franchise disclosure document?
It is the item where a franchisor may give financial performance figures for its outlets. The rule text opens the item with a statement that the Franchise Rule "permits a franchisor to provide information about the actual or potential financial performance" (16 CFR 436.5(s)(1)). The word to notice is permits.
Three points help a seller:
- The franchisor chooses. Whether the item carries figures is the franchisor's decision, so two franchisors in the same industry can differ.
- A figure is past or forecast. The rule asks the franchisor to say which it is giving (16 CFR 436.5(s)(3)(i)).
- It speaks for the system. A figure describes the outlets the franchisor chose to describe, which may or may not look like yours.
What does it mean if my franchisor's Item 19 gives no figures?
It means the franchisor has chosen not to make a financial performance representation, and the item then says so. The rule text has the franchisor state that it does not make representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets (16 CFR 436.5(s)(2)).
Some franchisors give figures and some do not. A buyer can see that the item is empty, just as a buyer can see a table full of figures. An empty item tells a buyer nothing about your location. With no system figure to compare, a buyer may lean harder on your own records.
What must a franchisor show with the figures it gives?
When a franchisor gives a past result, the rule asks it to explain the figure. These are the questions to read for in your own document. They follow the rule text (16 CFR 436.5(s)(3)), and they are not a list of what your franchisor's Item 19 says.
- Which outlets? The rule asks whether the figure covers all existing outlets or only a group sharing a characteristic, such as geographic location, type of location, degree of competition, or whether the outlets are franchised or franchisor-owned.
- When? The rule asks for the dates the reported performance was achieved.
- How many? The rule asks for the total number of outlets, how many had the described characteristics, and how many outlets' data were used.
- What share reached it? The rule asks for the number and percent of outlets that attained or surpassed the stated result.
- What differs from an outlet like yours? The rule asks the franchisor to disclose characteristics of the included outlets that may differ materially from the outlet offered.
The same paragraph asks for a reasonable basis and written substantiation for any representation, to be made available to a prospective franchisee on reasonable request. It also asks for a clear caution that a new franchisee's individual financial results may differ from the result stated. If the figures matter to your sale, ask your franchisor in writing what substantiation it holds.
What does Item 19 not tell me about my franchise?
Three things a seller can lose sight of:
- It does not tell a buyer how your location performs. A system figure, or a figure for a group of outlets, is not a figure for your unit. The rule's own caution says as much.
- It does not describe your territory. Territory sits in Item 12, a separate item. Our article on how to sell a franchise territory covers it.
- It does not say what your franchise is worth. A valuation looks at your own books and your own terms.
How may a resale buyer hold Item 19 against my numbers?
It depends on what your franchisor's Item 19 covers.
- If the figures cover outlets like yours, a buyer may hold your results against them and ask about any gap, whether yours is lower or higher.
- If the figures cover a different group, such as another type of location, a buyer may ask how yours differs.
- If the dates are not yours, a buyer may ask what has changed since.
- If Item 19 gives no figures, a buyer has only your records and may ask for more of them.
None of this is a reason to wait for a buyer to raise it. Before you list, read your franchisor's current Item 19. Mark which outlets it covers, the dates, and the share that reached the stated result. Then write one sentence for each place your location differs. Work from the document itself and not from memory of a figure you were quoted.
What should I do first?
Four steps, all within your control:
- Ask your franchisor in writing for its current disclosure document, and keep your old copy and the receipt you signed.
- Read the start of Item 19: does it give figures, or say it gives none?
- If it gives figures, note the outlets, dates, number of outlets and share that reached the result.
- Get a current number for your own location before you speak to a buyer.
A free Opinion of Value is that number, and it commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value and tell us what your Item 19 says.
If you decide to sell, we help with buyer screening, due diligence and offer negotiation, franchisor approval, paperwork and closing steps, and confidentiality is available throughout. Our sell a franchise page shows how we work with owners.
For the law on any of this, your franchise attorney is the person to ask. This article is general information, not legal advice.
Frequently asked questions
It is the nineteenth item, headed Financial Performance Representations, after Item 18 and before Item 20 (16 CFR 436.5). Ask your franchisor in writing for its current document and read the start of Item 19 first, since it either gives figures or says it gives none.
Check before you do. The rule text for Item 19 mentions a franchisor giving actual records of an outlet a prospective franchisee is considering buying (16 CFR 436.5(s)(1) and (s)(2)), and those lines are written about the franchisor. Ask your franchisor in writing what it expects of a seller who shares figures, and have a franchise attorney read the reply.
Not necessarily. Item 19 describes the system or a group of outlets the franchisor picks, and a valuation looks at your own location. A buyer may read them side by side, which is a reason to know your own number first.