Financial Performance Representations
Item 19 Disclosures
When putting together your franchise disclosure document, one of the major decisions you have to make as a franchisor is whether or not to include an Item 19 financial disclosure. The FTC rule is set up to provide consumer protection and takes a scrutinizing look at any financial performance representations provided in Item 19. They are worried that franchisors will cook the numbers to make their franchise opportunity look profitable or otherwise mislead the franchisee. As a result, for many years the conventional wisdom was to avoid an Item 19 disclosure altogether. It just wasn’t worth the risk of having your disclosure called into question.
However, today, the Item 19 disclosure has become common and most franchise consultants will tell you that prospects will heavily discount any franchise documents that do not include one. Thankfully, due to the most recent version of the FTC rule, the Item 19 disclosure is no longer to be feared. By sticking to a historical performance representation you can easily provide substantiation for your disclosure. The Kinsey Law Office can help you make sure your disclosure stays on the right side of the FTC rule as part of a document review service. Your documents should look attractive to prospects and boring to regulators for the best chance at success in franchising.