Item 20 of the Franchise Disclosure Document (FDD) provides detailed information about the growth, turnover, and network composition of the franchise system. It includes statistics on the number of franchised and company-owned outlets, openings, closings, transfers, and terminations over the past three fiscal years.
In franchising, Item 20—titled “Outlets and Franchisee Information”—gives prospective franchisees a clear, factual overview of the system’s expansion, stability, and franchisee success or failure rates. It discloses how many units were operating at the beginning and end of each of the last three fiscal years, how many were opened or closed, and whether they were transferred, reacquired by the franchisor, or terminated. This data helps prospective franchisees evaluate the health and maturity of the franchise network. Item 20 also includes contact information for current and former franchisees, enabling due diligence conversations that reveal what operating a franchise in the system is really like.
Item 20 was first introduced in the Uniform Franchise Offering Circular (UFOC) to promote transparency about franchise system performance and was retained under the Federal Trade Commission’s (FTC) Franchise Rule. Before its inclusion, franchisors could highlight system growth without disclosing closures or failures, leading to misleading impressions of stability. Item 20 solved this problem by requiring standardized tabular disclosures of system changes. Today, Item 20 is one of the most data-driven and revealing parts of the FDD, providing valuable insight into franchise success rates, turnover trends, and system growth patterns over time.
Also See: The Educated Franchisee, 3rd Edition
Under the FTC Franchise Rule (16 C.F.R. Part 436), Item 20 requires franchisors to disclose five standardized tables covering the following:
This data allows potential franchisees to assess franchise system growth, turnover, and the franchisor’s track record of stability. High turnover or termination rates can signal potential operational or support issues, while steady growth may indicate a healthy and sustainable system.
| Category | Description | Purpose |
|---|---|---|
| Franchised Units | Number of franchises operating at the beginning and end of each year. | Shows system growth or decline. |
| Company-Owned Units | Outlets owned and operated by the franchisor. | Indicates the franchisor’s direct operational involvement. |
| Transfers | Franchises sold or reassigned between owners. | Shows franchisee turnover and resale activity. |
| Terminations | Franchises terminated for breach or nonperformance. | Highlights potential franchisee risk factors. |
| Non-Renewals | Franchises that expired or were not renewed. | May indicate satisfaction or system changes. |
| Ceased Operations | Units that closed voluntarily or due to economic factors. | Reveals business stability or market challenges. |
| Projected Openings | Planned new outlets for the next fiscal year. | Shows franchisor’s growth trajectory. |
| Issue | Best Practice |
|---|---|
| Incomplete Data | Include all required categories and maintain consistency across fiscal years. |
| Misleading Growth Claims | Support any growth statements with verifiable Item 20 data. |
| Inaccurate Franchisee Lists | Ensure contact information for current and former franchisees is accurate and updated annually. |
| High Closure Rates | Provide explanations in the FDD or during franchise discussions if closures exceed industry norms. |
| Unclear Projections | Base future opening projections on realistic and documented development plans. |
'Item 20 of the FDD provides a three-year history of the number of franchised and company-owned outlets, including openings, closures, and transfers.'
'According to Item 20, the franchisor plans to open 25 new locations during the next fiscal year.'
'Prospective franchisees should study Item 20 to assess system growth and speak with current and former franchisees for deeper insight.'
Item 20 of the Franchise Disclosure Document (FDD) details the structure and evolution of the franchise network, including the number of openings, closures, and transfers over the past three years. This disclosure allows prospective franchisees to evaluate system stability, growth trends, and turnover rates—critical factors in assessing the overall health of a franchise opportunity.
