How to Validate a Franchise: FDD Item 19 + Owner Calls

To validate a franchise before buying, read the Financial Disclosure Document (FDD) Item 19 to understand what the franchisor actually claims about earnings, then call 8-15 current and former franchisees to confirm those numbers hold up in the real world. Item 19 tells you what is possible on paper; validation calls tell you what is likely for someone in your situation, market, and budget.

Franchise validation is the single most important due-diligence step most buyers rush. It is where you separate a polished sales pitch from a business you can actually run at a profit. This guide shows you how to read Item 19 without being misled, how to structure validation calls, the exact questions to ask existing owners, and the red flags that should make you slow down or walk away.

How to validate a franchise using FDD Item 19

Item 19 of the FDD is where a franchisor may (but is not required to) make a Financial Performance Representation (FPR) - the only place the company is legally allowed to share earnings claims. If a franchisor gives you revenue or profit numbers anywhere else (in an email, on a call, in a brochure), that is a red flag. Roughly half of franchisors include an Item 19 at all; a blank Item 19 is not automatically bad, but it puts more weight on your validation calls.

What to look for inside Item 19

• •Is it revenue or profit? Most Item 19s show gross sales or average unit volume (AUV), not net profit. Gross revenue tells you almost nothing about what you take home.
• •Sample size and inclusion: How many locations are in the figures, and what percentage of the total system does that represent? A number based on only the top 20% of stores is not representative.
• •Averages vs. medians: Averages get pulled up by a few high performers. Ask for the median and the range, not just the mean.
• •Maturity of units: Are these locations open 1 year or 5 years? First-year numbers for a mature-store average will mislead you.
• •Company-owned vs. franchised: Company-run units often outperform new franchisees and can skew the average.
• •What costs are shown: Some FPRs list revenue plus a partial cost breakdown; most omit rent, labor, royalties, and marketing fees entirely.

Build a rough profit model from Item 19: start with median revenue, subtract royalties and ad-fund fees (Item 6), cost of goods, labor, rent, and debt service. A common rule of thumb is that a healthy franchise leaves the owner-operator a defensible margin after paying themselves a salary - but ranges vary widely by industry, so treat any single number as a hypothesis to test on calls, not a promise.

How to run franchisee validation calls

Validation calls are conversations with people already operating the franchise. The franchisor is required to list current and former franchisees in Items 20 and the FDD exhibits - use that list, but call your own picks, not just names the salesperson hands you.

• •Call a mix: newer owners (under 2 years), established owners (3+ years), and at least 2-3 franchisees who have LEFT the system. Former owners tell you the most.
• •Aim for 8-15 calls. Patterns only appear after several conversations; one glowing or one bitter call proves nothing.
• •Pick owners in markets like yours - similar city size, demographics, and unit count. A rural single-unit owner's experience won't match a metro multi-unit operator.
• •Call, don't email. Tone, hesitation, and what people won't put in writing matter.
• •Take notes in a spreadsheet with the same questions per call so you can compare answers side by side.

Exact questions to ask existing franchise owners

Ask open, specific questions. Avoid yes/no phrasing. Here are the ones that surface the truth:

Financials and ROI

• •What was your total all-in investment to open, and how did that compare to the FDD estimate in Item 7?
• •How long did it take to reach break-even and then to recover your initial investment?
• •What is your approximate annual revenue, and what percent of that do you actually keep after all fees, labor, and rent?
• •Were there costs the franchisor didn't warn you about?

Franchisor support and relationship

• •How responsive is the franchisor when you have a real problem? Give me a recent example.
• •What did the training and grand-opening support actually cover versus what was promised?
• •How are the required royalty and marketing fees delivering value? Do you see results from the ad fund?
• •Has the franchisor changed the rules, fees, or required vendors since you signed?

Operations and lifestyle

• •How many hours a week are you personally working, and can this be run absentee or semi-absentee?
• •How hard is it to hire and keep staff in this business?
• •What surprised you most - good and bad - after you opened?

The decision question

• •Knowing what you know now, would you buy this franchise again? Why or why not?
• •If you were me, what would you want to know before signing?
• •Who in the system should I definitely talk to - including anyone who's unhappy?

Red flags to watch for

Any single item below may be explainable; several together should stop you.

• •Earnings claims made outside Item 19 (verbal or in emails) - this is a compliance violation and a warning sign.
• •A short 'approved caller' list, or the franchisor discouraging you from calling former franchisees.
• •High franchisee turnover: a rising number of terminations, transfers, or closures in Item 20 without a clear reason.
• •Owners who can't answer basic profit questions, or whose numbers are far below the Item 19 averages.
• •Frequent, unexplained litigation in Item 3 - especially the franchisor suing its own franchisees.
• •Fees or required vendors that keep increasing, or a franchisor that recently changed ownership and direction.
• •Pressure to sign fast, 'limited territory' urgency, or discouragement from using your own franchise attorney.
• •A brand where most growth is new sales, not renewals - franchisees not renewing is a quiet vote of no confidence.

Special notes for E-2 investor-buyers

If you are validating a franchise to support an E-2 investor visa, add a few questions specific to your goals. Ask whether the total investment (Item 7) is enough to be considered 'substantial' for your business type, and whether the model can genuinely employ U.S. workers, since a marginal one-person business can weaken an E-2 case. Ask owners how quickly the business generated real operating activity, since E-2 favors an active, income-producing enterprise over a passive investment.

This is general information, not legal, tax, or immigration advice. Item 19 figures are historical and not a guarantee of your results; always have a qualified franchise attorney review the FDD and a licensed immigration attorney assess your E-2 eligibility before you commit.

Putting it all together

• •Read Item 19 and build a conservative profit model from median (not average) numbers.
• •Cross-check every fee in Items 5, 6, and 7 against what owners actually report.
• •Complete 8-15 validation calls, including former franchisees, using the same question set.
• •Compare notes for patterns, flag anything that repeats, and have your attorney review before signing.

KLC Franchise helps international investors - including Turkish entrepreneurs pursuing the E-2 visa - match with U.S. franchise brands that fit their budget and goals. Our matchmaking is free, and we're a consultancy, not a law firm. If you'd like help shortlisting brands worth validating, take our free franchise quiz to get started.