What if the FDD has no Item 19?

You can still diligence the brand. You cannot pretend you have a performance number. Build from owner financials they are willing to share, from Item 7, and from Item 20. If owners will not share anything, that silence is the validation.

Should I use the average as my sales guess?

No. I start at the median when they publish one, then I haircut for a new unit and for my market. An average is a fact about a group. It is a bad personal budget.

Buyer questions

How do I validate Item 19?

Item 19 is the only place a franchisor may put a financial performance representation in the FDD, and only if they choose to make one. The FTC does not require them to make one.

Validating it means you can explain the table without the salesperson: what was measured, which units were included, and whether a careful owner in your situation could land near the middle. If you cannot do that after the footnotes and the calls, treat the page as missing.

What the page is allowed to be

The FTC compliance guide requires a reasonable basis, written substantiation, a home in Item 19, and a warning that your results may differ. The FTC's consumer guide says claims about sales, income, or profits belong there. No Item 19 is legal, and it is still a flag: you are modeling from calls with nothing written to check them against.

A cute Item 19 is worse. I slow down for an average with no middle, sales with no costs, company stores dressed up as franchisees, or a subset that is the best group. The longer list is in FDD red flags I learned the hard way. The order I use is in how I read an FDD in 20 minutes.

Median, average, and which units count

An average can be one great unit and a pile of ordinary ones. A median is the middle. The Rule does not force a brand to publish both. I still want both, and the count. The guide does require them to say whether the figure is all outlets or a subset, and whether those outlets are franchised, company-owned, or an affiliate's. I write that down before I read a dollar.

Franchisee units, company-owned, affiliate, or a blend the footnote hopes you will skip?
How many outlets were open, how many were measured, and why were the others left out?
Are new units in the set, or only units open a full year?
Is it a calendar year, a trailing twelve months, or a period someone chose?
Are manager-run units separated from owner-operated units?
Does the table show costs, or only the top line?

The calls that check the page

The FTC allows two extras outside a canned speech: the actual records of an outlet you are buying, or a supplement to Item 19 for a particular location. Any other number in a sales call does not go in my model unless they can point to it in the document.

Then call a recent opener, a three-year owner, a multi-unit operator, and someone who left. Ask if they were in the group, where they sit against the median, and which costs the table skips. One glowing call is a testimonial. Five mixed calls are diligence. Build the P&L from the middle, with your wages and rent. A national average does not know Mount Pleasant labor. If that page misses fixed costs plus the reserve after opening, Item 19 told you no. I am not a lawyer. The page is a disclosure, not a promise.

Were you in the Item 19 group last year, and where did you land against the middle?
What did you actually spend to open versus Item 7?
Which costs do you pay that this table never shows?
Did your first year look anything like this page?
Which units got left out, and do you know why?
Would you buy this brand again, knowing what you know?

FAQ

What if the FDD has no Item 19?: You can still diligence the brand. You cannot pretend you have a performance number. Build from owner financials they are willing to share, from Item 7, and from Item 20. If owners will not share anything, that silence is the validation.
Should I use the average as my sales guess?: No. I start at the median when they publish one, then I haircut for a new unit and for my market. An average is a fact about a group. It is a bad personal budget.
Can a salesperson quote numbers that are not in Item 19?: Only in the narrow cases the FTC describes: actual records of an outlet you are buying, or a supplement to Item 19 for a particular location or circumstance. Anything else does not go in my model.

Sources

Keep reading

Bring the Item 19, not the highlight reel

If a table is in your inbox, we can mark the subset, the middle, and the calls you still need. Book a call. If you do not have a brand yet, the advisor is the quieter place to start.