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Choose whether to make an earnings claim
A financial performance representation is a statement about financial results or potential results covered by the rule. You may choose not to make one, but Item 19 still has to be addressed. Where you make a representation, it needs a reasonable basis and written substantiation—the material supporting the claim—when made, and must appear in Item 19 with the required supporting detail and qualifications.
Written support alone does not permit a salesperson to make an earnings claim orally, in an advertisement or on a separate spreadsheet. The rule has specific, conditional treatment for actual records of an existing outlet being considered for purchase and properly identified supplemental representations; these are not general permission for off-document claims.
What changes when the U.S. unit pays a manager?
Fictional example: a unit has $1,000,000 annual revenue and $180,000 remaining before two costs that have not yet been included—a manager and a royalty. Assume a complete manager cost of $120,000 and a royalty of 6% of revenue.
| Fictional calculation | Amount |
|---|---|
| Starting remainder before the two omitted costs | $180,000 |
| Manager cost | − $120,000 |
| Royalty: $1,000,000 × 6% | − $60,000 |
| Left before any other omitted costs | $0 |
Check the starting figure before subtracting
The example illustrates cost definitions, not a brand’s actual earnings. Do not deduct a manager or royalty twice if the starting figure already includes it. Check the source period, currency, units included and excluded, unit type and costs. Founder-operated, company-owned and franchised units can have different economics; an average can hide their differences. Projections also depend on their stated assumptions.
Keep your internal planning assumptions distinct from the figures and qualifications used in recruitment. Strong home-market sales alone do not describe a U.S. unit’s manager-inclusive result.
Scope
- The calculation is invented teaching material, not a real result or forecast. This covers selected federal requirements; state requirements and a particular representation need their own assessment.
Next step
Before using a financial figure in recruitment, check its definition and supporting basis and apply the required Item 19 treatment. The linked guide explains the home-market pitch problem.
Sources & review notes
Federal Franchise Rule
FTC overview · Compliance Guide · Guide PDF · Current regulation
Federal Trade Commission
Passage, dates and research notes
primary · Item 19: Financial performance representations
reasonable basis and written substantiation for the representation at the time the representation is made
Current substantive item read in full from current eCFR. This guide explains selected management implications; it is not a substitute for all prescribed disclosure text.
Federal Trade Commission
Passage, dates and research notes
primary · section-436.6
Respond fully to each disclosure Item.
Current eCFR displayed through 2026-11-09; eCFR is authoritative but not the official legal edition.
Detailed rule records (1)
Item 19 has required disclosure whether or not the brand elects to make a financial performance representation. Where one is made, reasonable basis, written substantiation, cohort detail or forecast assumptions and required qualifications matter. Revenue alone does not answer manager-adjusted profitability.
16 CFR §436.5(s): FDD Item 19Related case records
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