Understanding Item 19
1 min read
Franchisors are not required to provide sales or earnings figures. Item 19 explains any financial performance representations they choose to make—or states that they do not make them. A franchisor may make one, several, or none. When one exists, it is a specific claim about a specific group over a specific period — and it is only as useful as your reading of those three things.
Terms used in this guide
- FDD (Franchise Disclosure Document)
- The document a franchisor must give you at least 14 days before you sign or pay. It is organized into 23 numbered Items covering costs, obligations, history and the agreements.
- Cohort
- The specific group of outlets a figure describes, for example franchisee-owned outlets open a full year.
- AUV (average unit volume)
- Average annual sales per outlet. It measures sales, not profit or owner income.
Read the cohort before the number
Ask who is in the group and who was left out. Company-owned outlets may have different costs, locations and operating conditions from franchisee-owned ones, and they are sometimes reported together. Units open less than a full year are commonly excluded, which removes exactly the period a new owner will experience.
Revenue is not profit
Most Item 19 disclosures report gross revenue or billings. Unless the disclosure itself presents costs, nothing in it tells you about margin, and nothing in it tells you what the owner earned. Don't infer owner income from a revenue disclosure, and be cautious of anyone who does.
Tercile and quartile averages are not percentiles
"Top third average: $1.4M" means the average of the highest-performing third. It is not the 66th percentile, and it is not a typical outcome. Averages hide skew; ask for the median and the sample size.
Why a single headline figure misleads
Compressing an Item 19 into one headline number, such as an average unit volume (AUV — average annual sales per outlet), strips away the group, period, sample size and exclusions that make it meaningful. Read each table with its definitions and footnotes.
Looking at an earnings claim?
A consultant can help you work out what an earnings claim includes, what it leaves out, and what to ask.
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