UNDERSTANDING ITEM 19 IN A FRANCHISE DISCLOSURE DOCUMENT

By Tiffany Dodson

For a potential franchise buyer, Item 19 provides one component of many to consider. There are many things the prospect may learn from a detailed look at Item 19. For those less familiar, Item 19 is one of 23 items in the franchise disclosure document (FDD). Item 19 offers the franchisor’s financial representation of its concept’s performance.

Reviewing and understanding Item 19 is part of a comprehensive evaluation of a franchise opportunity.

The franchisor will decide whether to include an Item 19. There are many factors that go into this decision. If an Item 19 is not present, then the franchise buyer will need to interview franchisees in the system to ascertain financial information for unit level performance. Even if an Item 19 is included, the franchise buyer will still want to interview system franchisees about their experiences, including what is contained in Item 19. This process validates your understanding of the representation shared by the franchisor.

When evaluating an Item 19, consider the following five tips:

01Experts: If you hire an expert to help you, then hire a franchise expert. For example, if you were being charged with murder, would you hire an attorney that specializes in real-estate contracts to defend you? Of course not. And buying a franchise requires a significant investment of financial and time resources. So, if hiring an expert, make sure they know the franchise landscape. This way they have more insight into the industry and its innerworkings.