The Pipeline Review is our inside look at franchise development trends, pulled directly from our monthly insider newsletter, Franchise Unfiltered.
After many lobby and bar conversations this conference season, one recurring FranDev topic kept coming up: What should actually be in an FDD?
I know, very exciting stuff.
More specifically, the debate keeps coming back to Item 19. At this point, most brands serious about franchise sales understand the downside of having no Item 19 at all. Prospects want it. Lenders want it. Potential partners often want it, too. For many franchisors, not providing any disclosure around potential financial performance can make it much harder to sell the opportunity with any real velocity.
So to me, the bigger issue is no longer whether brands should include an Item 19. It’s how adept franchisors can become at making their franchise opportunity look better than reality, all while using the Item 19 itself.
The Industry Has Mostly Moved Past the ‘Should We Have One?’ Debate
Naturally, I think every franchise developer would prefer to be as transparent about their opportunity as possible. After all, any prospect who ultimately signs on the dotted line could be entering into a 10-year partnership with you. You’d certainly want them to feel comfortable with what they’re committing to.
The problem is that transparency can get complicated very quickly. Creating an Item 19 with statistically reliable numbers isn’t easy, especially for younger brands or systems with limited data. At the same time, the way those numbers are presented can dramatically change the story a franchise candidate sees.
That’s why I think the industry needs to spend less time talking about whether an Item 19 should exist and more time asking a tougher question: How useful is the disclosure actually being provided?
Not All Item 19s Tell the Same Story
There are plenty of ways to make a franchise opportunity look more attractive without necessarily presenting false information.
To name a few of the greatest hits: averages instead of medians, top performers without the bottom, gross sales without profitability, corporate locations mixed in with franchisees, carefully selected cohorts, and “immature” units conveniently left out.
Using averages instead of medians is one of the simplest examples. A few exceptionally high-performing locations can pull the average up significantly and create a picture that doesn’t reflect what the typical franchisee is actually experiencing.
The same issue comes up with cherry-picking. A brand may highlight data from its strongest locations while leaving out struggling units, closed locations, or stores where revenue data wasn’t collected. Gross revenue can also sound impressive, but without context around expenses or profitability, it only tells part of the story.
Company-owned locations create another layer of complexity. Those units may benefit from corporate resources, economies of scale, or management structures that aren’t available to the average franchisee. Cohort selection can have a similar effect when brands focus on specific markets, narrow windows of time, or other favorable segments.
Then there are “immature” units. Excluding locations open for less than 12 or 24 months may make the dataset cleaner, but it can also remove exactly the information many candidates want most: what does the ramp-up period actually look like, and how long might it take to reach break-even?
None of these tactics necessarily make an Item 19 inaccurate. But stack enough of them together and the disclosure can create a much rosier picture than the reality a typical franchisee might experience.
Should Item 19 Become More Standardized?
So here’s the $1 million question: Should Item 19 disclosures become more standardized across the industry?
There are obvious risks. Franchise models, sectors, and markets vary too much for a simple one-size-fits-all approach. A home services franchise and a QSR have very different economics, and even two brands in the same category may operate differently enough that forcing them into an identical format could create more problems than it solves.
There are also legal considerations. If standardization doesn’t account for those nuances, the industry could create new liabilities or even push some franchisors to disclose less rather than more.
But if we can create more consistency without killing flexibility, I think franchise buyers could make significantly better-informed decisions.
The goal shouldn’t be to make every Item 19 identical. It should be to establish enough consistency that candidates can understand what they’re looking at, what may be missing, and how one opportunity compares to another.
Better Disclosure Should Lead to Better Decisions
At the end of the day, this is bigger than whether a franchisor checks the box by including an Item 19.
Franchise buyers are making a significant financial and personal commitment, often for the better part of a decade. More disclosure is only helpful if the information gives them a realistic view of the opportunity they’re evaluating.
The industry has spent years pushing brands toward greater transparency. I think the next phase of that conversation should be about the quality and consistency of that transparency.
So what do you think? Should the industry move toward greater standardization of Item 19 disclosures, or would that create more problems than it solves?
Want More Franchise Insights?
This conversation is just one example of what we share in Franchise Unfiltered, our monthly newsletter for franchisors who want real perspective on what’s changing, what’s working, and what actually matters in franchising right now, including:
Unfiltered perspectives from certified franchise experts embedded in franchise systems every day
Sharp insights and fresh perspective you won’t find anywhere else
No fluff. No vendor spin. Just practical insights you won’t find in press releases or panel soundbites
If you’re building, advising, or supporting franchise brands and want a sharper lens on where the industry is headed, subscribe to get Franchise Unfiltered straight to your inbox.
