What Is Item 20
Item 20 of the Franchise Disclosure Document lists every franchisee who operates or has operated a franchise unit under the franchisor's system. The document includes the franchisee's name, city, state, and phone number for both active and former operators. Franchisors must update this list at least semi-annually to remain compliant with FTC regulations.
Why It Matters
Item 20 is your direct connection to people running the business you're considering. Unlike generic marketing claims or financial projections in Item 19, these are real franchisees who can tell you about actual operating costs, territory performance, franchisor support quality, and renewal terms. The list composition itself reveals critical information. A high turnover rate between the current list and prior disclosures suggests churning, where the franchisor cycles through operators quickly. A stable list indicates franchisees are renewing and staying profitable.
How to Use Item 20
Start by counting total franchisees across the past three years of Item 20 lists if you can obtain them. If a franchise system had 150 units two years ago and 95 today, that's a 37 percent decline. Contact both active and terminated franchisees. Former operators often provide the most candid feedback, especially those whose franchises didn't survive or weren't renewed. Ask specific questions about franchise fees charged (initial and renewal), territory protection specifics, and whether the franchisor enforced non-compete provisions during renewal negotiations. During validation calls, ask franchisees whether Item 20 contact information was accurate when they received their FDD or if the franchisor's address data was outdated.
Red Flags and Patterns
- Contact information listed as "call franchisor headquarters" rather than direct franchisee phone numbers, which limits your ability to reach operators independently
- A significant drop in franchisee count between Item 20 lists, particularly if coupled with marketing claims of "rapid expansion"
- Former franchisees clustered in specific years, suggesting systemic issues that emerged at certain points
- Item 20 addresses concentrated in only one or two states when the franchisor claims national presence
- Renewal refusals or non-renewals mentioned by multiple franchisees, particularly around the typical 5 or 10-year renewal cycle
How Item 20 Connects to Other FDD Sections
Item 20 works alongside Item 19 (financial performance representations). If Item 19 shows average unit volumes of $850,000 but Item 20 franchisees report revenues of $400,000 to $600,000, question why the gap exists. It may indicate Item 19 includes outliers or cherry-picked top performers. Cross-reference the franchisee list with Item 17 (renewal terms) and Item 6 (fees). Ask Item 20 franchisees whether they renewed at the same fee level and under the same territory rights, or whether the franchisor renegotiated terms at renewal.
Common Questions
- What if Item 20 has fewer than 10 franchisees total? You have a very small sample size for validation. Contact every single operator. A small system isn't necessarily bad, but you have limited comparable experiences to evaluate.
- Can the franchisor refuse to give me Item 20 contact information? No. Item 20 is part of the FDD and must be disclosed. If a franchisor resists or provides incomplete information, consult a franchise attorney before proceeding.
- How far back should I contact former franchisees? Contact franchisees who terminated within the last 3 to 5 years. They'll remember operational details vividly and can assess whether issues you uncover are longstanding or recent.
Related Concepts
- Validation - the process of interviewing franchisees to verify FDD claims
- Churning - rapid franchisee turnover indicating systemic franchisor or market problems