FRANCHISE LAW
Item 19 at FDD Renewal: Updating Earnings Claims
Item 19 is optional — but if you make a financial performance representation, you must update it at every renewal and back it with a reasonable basis and written substantiation. The FTC Franchise Rule lets franchisors decide whether to include an Item 19, but once you make an earnings claim it becomes one of the most scrutinized pages in the Franchise Disclosure Document. Refreshing it well each year is both a compliance duty and a sales advantage; refreshing it carelessly is how franchisors invite misrepresentation claims.
Optional to Make, Mandatory to Substantiate
Item 19 is the only place in the FDD where a franchisor may present how its outlets perform financially. The Rule does not require you to make a representation — but if you do, three things are not optional:
- You must have a reasonable basis for the representation at the time you make it.
- You must have written substantiation for it on file.
- You must include a statement that the substantiation will be provided to a prospect on reasonable request.
A “reasonable basis” is information a prudent businessperson would rely on — actual system data, point-of-sale reports, or audited figures — not a hopeful average. Many prospects now expect an Item 19, and franchises that can stand behind real numbers compete better, so the page earns its keep when the data is solid.
Updating Item 19 at Renewal
At each annual update, rebuild the representation from the most recent complete fiscal year rather than carrying last year’s figures forward. Keep the methodology consistent year to year — the same outlet population, the same averages or medians, the same inclusions and exclusions — so the numbers are comparable and defensible. Refresh the written substantiation file at the same time, because that is what you will produce if the representation is ever questioned.
One timing rule sets Item 19 apart from the rest of the FDD: a material change to your financial performance representation must be disclosed when it occurs, not held to the next annual update or quarterly amendment. If the numbers behind your claim move materially mid-year, the claim has to move with them.
Common Item 19 Mistakes
| Misstep | Why it is a problem |
|---|---|
| Cherry-picking top performers | Presents an unrepresentative picture; not a reasonable basis |
| Reusing last year’s figures | The representation is stale and may no longer be supported |
| Numbers without written backup | Violates the substantiation requirement |
| Earnings claims made outside the FDD | Sales reps quoting figures not in Item 19 is a Rule violation |
Item 19 is also where weak data gets caught alongside the litigation and outlet figures — see keeping Items 20 and 3 accurate and the broader list of common renewal mistakes. For how Item 19 fits the rest of the update, start with what changes in an annual FDD update.
Historical Results vs. Projections
An Item 19 representation can present historical results — what existing outlets actually earned — or a forecast of what a new franchisee might expect. Historical figures are the more common and the easier to defend, because the support is your own system’s real data. A projection is permitted too, but it raises the bar: you must disclose the material assumptions behind it and still hold a reasonable basis for each one. Whichever form you use, define the outlet population clearly. If you report an average unit volume, say how many outlets it covers, whether it includes company-owned units, and how long those outlets have operated, so a prospect can read the number in context.
The page also has to be honest about its own limits. A clear, well-defined Item 19 that says exactly what it measured will outperform a vague but flattering one — both with prospects and with any regulator or court that later reads it. Precision is the protection.
Frequently Asked Questions
Do I have to include an Item 19?
No. The Rule allows but does not require a financial performance representation. If you make one, you must have a reasonable basis and written substantiation.
Can I keep last year’s Item 19 numbers?
Update them at renewal using your most recent full year of data. Carrying old figures forward risks an unsupported, stale representation.
What counts as written substantiation?
Real, verifiable support — POS data, tax returns, audited statements, or franchisee financial reports — kept on file and producible on a prospect’s reasonable request.
When must I disclose a change to my earnings claim?
When it occurs. Unlike most material changes, an Item 19 change is not held to the quarterly amendment; it must be disclosed as it happens.
A strong Item 19 is a competitive asset only when the numbers are current and provable. Reidel Law Firm drafts and substantiates financial performance representations as part of a flat-fee FDD renewal. Explore the Startup Franchising Package → or contact us to review your earnings claim.
