Item 19 Financial Performance Representations Guide

If your franchise makes financial performance representations, the legal rules are narrow and specific: any claim about a franchise’s sales, income, or profits must have a reasonable basis and written substantiation, must be disclosed in Item 19 of your Franchise Disclosure Document, and must state the material assumptions behind it — and you cannot make such claims anywhere else. Financial performance representations are voluntary under the FTC’s Franchise Rule, but the moment you make one, the rule controls exactly how. Getting this wrong is one of the most common and most consequential franchisor compliance failures.

This guide explains what counts as a financial performance representation, the standards the FTC Franchise Rule imposes, and the practices that keep an Item 19 defensible.

What Counts as a Financial Performance Representation

A financial performance representation (FPR) is any statement — written or oral — that states, suggests, or implies a specific level or range of actual or potential sales, income, gross profits, or net profits for a franchised or franchisor-owned outlet. The definition is deliberately broad. A chart of average unit volumes is an FPR; so is a salesperson telling a prospect “most of our owners clear six figures,” and so is a hint dropped in a webinar. If it points a prospective franchisee toward a number they could earn, it is an FPR and the rule applies.

This breadth is why franchisors get into trouble informally. The disclosure document may be clean while a development team makes off-the-cuff earnings claims that violate the rule.

The Core Rule: Reasonable Basis, In Writing, In Item 19

The FTC’s Franchise Rule (16 CFR Part 436) does not require a franchisor to make any financial performance representation. But if you choose to, the rule imposes firm conditions, codified at 16 CFR 436.5(s):

The single most important structural rule is the last column of the first row: Item 19 is the only place a franchisor may make an FPR. A franchisor that wants to share earnings information must put it in Item 19, with the required context, or not share it at all.

The “No Numbers Outside Item 19” Rule

Because FPRs are confined to Item 19, the franchisor’s entire sales and recruiting operation has to be disciplined about earnings talk. If the FDD contains no Item 19 financial performance representation, the franchisor and everyone selling on its behalf must not provide prospects any earnings figures, projections, or even rough estimates. Side conversations, pro formas a broker prepares, and “for example” numbers in a discovery-day presentation are all violations if they convey a financial performance figure not disclosed in Item 19. Train your sales team to route every earnings question back to the document.

What Makes an Item 19 Defensible

A well-built Item 19 protects the franchisor as much as it informs the franchisee:

• Define the data set precisely. State exactly which outlets are included (company vs. franchised, mature vs. new, comparable formats) and which are excluded, and why.
• Show the assumptions. Spell out the time period, the basis (system-wide averages, top quartile, a cohort), and any costs that are and are not reflected — gross sales are not net profit, and conflating them is a classic deception claim.
• Keep the substantiation. Maintain the underlying financial records that support every figure; you must be able to produce them on request.
• Update it. The FDD is renewed annually; stale Item 19 data invites trouble. Refresh figures and assumptions each cycle.
• Match marketing to the document. Ensure nothing in your website, social, or sales scripts implies a number that Item 19 does not support.

For how Item 19 fits within the larger disclosure document, see the role of the Franchise Disclosure Document, and for the broader registration and disclosure framework, see the legal requirements to franchise your business.

Frequently Asked Questions

Are franchisors required to make financial performance representations?

No. Item 19 is optional under the FTC Franchise Rule. A franchisor may decline to make any FPR. But if it does make one, the representation must satisfy the rule’s reasonable-basis, substantiation, and disclosure requirements and must appear in Item 19.

Can a franchisor give a prospect earnings numbers outside the FDD?

No. Financial performance representations are permitted only in Item 19. Providing earnings figures, projections, or estimates in conversations, emails, or presentations — when they are not in Item 19 — violates the Franchise Rule, even if the numbers are accurate.

What does “reasonable basis” mean?

It means the franchisor has a reasonable factual foundation for the representation at the time it is made, supported by written material the franchisor can produce. Figures cannot be aspirational or hypothetical; they must rest on real, documented data with the assumptions disclosed.

What happens if an Item 19 is misleading?

A false or misleading FPR can expose the franchisor to FTC enforcement and to private claims by franchisees who relied on it, including fraud and misrepresentation theories. The most common problem is presenting gross sales in a way that implies profit, without disclosing costs.

A clear, well-substantiated Item 19 is one of the most powerful recruiting tools a franchisor has — and one of the easiest places to create liability. Reidel Law Firm helps founders build and update their FDD, including Item 19, on a flat-fee basis with direct attorney access — launch your franchise system on a compliant footing.