From million-dollar sales claims in the US to quick payback promises in India and Asia, franchise investors need to understand what sits behind the numbers. Item 19 offers one way to examine those claims, but the global franchising industry still has significant differences in financial transparency.
A franchise brand claims its outlets generate $1 million in annual revenue. Another promises investors that they can recover their investment within two years. A third showcases its most successful franchisees as proof of a profitable business model.
For someone considering a franchise, these figures can be difficult to ignore. But there is a catch: a franchise that generates impressive sales does not necessarily generate impressive profits.
This is where Item 19 comes into the picture.
Under the US Franchise Disclosure Document (FDD), Item 19 is dedicated to Financial Performance Representations. It allows franchisors to share historical sales, gross profits, operating figures and earnings information with prospective franchisees. Providing this information is optional, but if a franchisor makes financial performance claims, they must have a reasonable basis for them and disclose them in Item 19.
The idea is simple: investors should know whether the numbers being presented are based on actual outlet performance or simply projections.
Yet, while the US has a defined disclosure mechanism, the approach differs considerably across the UK, India and Asia.
The $1 Million Sales Question
Consider a restaurant franchise reporting $1 million in annual sales. It sounds like a sizeable business, but what does the franchisee actually retain?
After food costs, employee salaries, rent, utilities, royalties, marketing contributions and other operating expenses, the remaining amount could be substantially lower.
For example, if a restaurant generates $1 million in annual revenue and spends $900,000 operating the business, its remaining operating profit is $100,000 before financing costs and taxes.
The difference between revenue and profit is precisely what investors need to understand.
A 2026 analysis of 259 US Franchise Disclosure Documents, issued between January 2025 and August 2026, offers an interesting picture of current disclosure practices.
The research found that 77.2% of the FDDs examined included an Item 19 financial performance representation. However, 50.5% of those disclosures reported revenue-related figures without providing cost or profit information. Only 33.5% went beyond gross profit to disclose measures such as EBITDA, operating income or net income.
In other words, a franchisor may be willing to show how much its outlets sell without necessarily revealing how much they make.
The findings underline why investors should not treat turnover as a measure of profitability.
The UK: Where the Earnings Story Depends on Disclosure
Unlike the US, the UK does not have a statutory Item 19 equivalent or a mandatory franchise-specific pre-sale disclosure document.
The British Franchise Association (BFA), however, has a Code of Ethics requiring its members to provide prospective franchisees with full and accurate written information material to the franchise relationship.
Financial projections should be objective, fact-based and supported by clear assumptions. Investors should also understand whether the figures come from company-owned outlets, pilot operations or existing franchisees.
Consider someone investing in a UK fitness franchise. The franchisor may present a financial model based on 500 active members and a particular monthly membership fee.
But what happens if the location takes 18 months to reach that membership base instead of six? What if staffing and rental costs are higher than anticipated?
The projected revenue may still look attractive, but the cash required to keep the business operating during its early months could change the investment equation considerably.
This is why prospective franchisees should ask for actual performance figures from comparable locations, rather than relying entirely on the franchisor’s ideal operating model.
India and Asia: When Payback Promises Need Closer Examination
In India, there is no dedicated comprehensive franchise legislation requiring a standardised FDD or an Item 19-style earnings disclosure.
This makes the financial information supplied by franchisors particularly important.
A prospective QSR franchisee, for instance, may be shown a projection promising investment recovery within 24 to 36 months. But investors need to establish what that calculation actually includes.
Does it account for the franchise fee, interiors, kitchen equipment, rent deposits, working capital, royalties and marketing expenses? Does it include the owner’s salary? Is the calculation based on an existing outlet or a projected new location?
The same issue appears in Singapore, where there is no dedicated franchise statute or mandatory franchise disclosure document. Investors must undertake their own financial and legal due diligence.
Australia provides a useful contrast within the Asia-Pacific region. Its Franchising Code of Conduct requires franchisors to disclose earnings information in the disclosure document or an accompanying document if they choose to provide it. Projections must explain their underlying assumptions, research and calculation period, including whether depreciation, franchisee salary and loan servicing costs are included.
The revised Australian Code introduced in April 2025 strengthened disclosure requirements, with additional obligations applying from November 2025.
This approach recognises that earnings information can be useful, but only when investors understand how the numbers have been calculated.
The Average Earnings Trap
One of the most misleading ways to present franchise performance is through average sales.
Imagine a network of 10 restaurants. Nine outlets generate $500,000 each, while one flagship location generates $2.5 million.
The network’s average annual sales would be $700,000 per outlet. Yet nine of the 10 franchisees are generating only $500,000.
The average makes the network appear stronger than the experience of most individual operators.
This is why Item 19 disclosures should be examined for more than headline averages. Investors should look at median sales, the number of outlets included, the percentage achieving the reported figures and whether the information covers franchised or company-owned locations.
The US Federal Trade Commission specifically warns that a small number of high-performing outlets can inflate average earnings. It also recommends checking whether the outlets used in the calculations operate in comparable locations and markets.
For an investor opening a restaurant in a smaller city, the performance of a flagship outlet in a major metropolitan market may offer limited guidance.
What Investors Should Ask Before Signing
Whether buying a coffee franchise in London, a QSR business in Mumbai or a fitness franchise in Singapore, investors should ask five questions:
- Actual or projected? Are the earnings based on existing franchisee results or a financial model?
- Revenue or profit? Does the figure account for operating expenses, royalties and owner compensation?
- How many outlets? Are the numbers representative of the network or based on selected high performers?
- What is the payback period? Does it include the complete investment and working capital?
- Can the figures be verified? Can the franchisor provide supporting financial records and connect prospective investors with existing and former franchisees?
In the US, buyers can also examine Item 20 of the FDD, which provides information about outlet numbers, changes in the network and franchisee turnover. This can help put the earnings figures into context.
The FTC recommends speaking with current and former franchisees and obtaining written substantiation for financial performance claims.
The Real Measure of a Franchise
A franchise brand may have hundreds of outlets, strong consumer recognition and impressive system-wide sales. But these achievements do not automatically translate into financial success for every franchisee.
Item 19 is an important step towards greater transparency in the US, while other markets have developed different approaches to financial disclosure. The broader challenge remains the same: prospective franchisees need more than an attractive sales presentation to make an informed investment decision.
The question is not how much a franchise can sell. It is how much an individual franchisee can realistically earn after paying to run the business.
