Franchise Genie Editorial Team
Key Takeaways
- FDD Item 20 shows three years of openings, closures, transfers, terminations, non-renewals, and reacquisitions, broken out by state.
- Add closures, terminations, non-renewals, reacquisitions, and ceased operations together, then divide by units at the start of the year, to estimate annual turnover.
- A high number of transfers can be healthy resales or a quiet sign of owners exiting, so call the people involved to find out which.
- Item 20 includes contact lists for current franchisees and for those who left in the last fiscal year, which makes it your best source of validation calls.
- Item 20 must disclose if franchisees signed confidentiality clauses in recent years that restrict what they can tell you.
FDD item 20 is the section of the franchise disclosure document that tracks every change in a franchise system’s unit count over the last three fiscal years: openings, closures, transfers, terminations, non-renewals, and reacquisitions by the franchisor. It also lists contact information for current and recently departed owners. Used well, it lets you calculate turnover and find the people who will tell you what the sales team will not.
Item 20 is mostly tables, which makes it easy to skim and easy to underestimate. The numbers tell a story about how owners fare in the system. This guide shows how to read each table, how to calculate a turnover rate, and how to use the contact lists for validation.
What is in FDD Item 20?
The FTC Franchise Rule requires a standard set of tables in Item 20, along with franchisee lists. The FTC’s Franchise Rule Compliance Guide shows sample formats. Most FDDs include the following.
| Table | What it shows |
|---|---|
| Table 1: Systemwide outlet summary | Franchised and company-owned units at the start and end of each of the last three fiscal years, with the net change |
| Table 2: Transfers | Number of franchised outlets transferred to new owners, by state, for each year |
| Table 3: Status of franchised outlets | Openings, terminations, non-renewals, reacquisitions by the franchisor, and units that ceased operations for other reasons, by state and year |
| Table 4: Status of company-owned outlets | Company openings, closures, and units sold to or reacquired from franchisees |
| Table 5: Projected openings | Franchise agreements signed but not yet opened, plus projected new openings for the coming year |
After the tables come the lists: names, business addresses, and phone numbers of current franchisees, and the last known contact information for every franchisee who had an outlet terminated, canceled, transferred, not renewed, or who otherwise left the system in the last fiscal year, or who has not communicated with the franchisor within 10 weeks of the FDD’s issuance date.
Item 20 also has to disclose whether current or former franchisees signed confidentiality clauses during the last three fiscal years that restrict them from discussing their experience. It may also list independent franchisee associations that asked to be included.
How to calculate franchise turnover from Item 20
There is no single official formula, but this approach gives you a consistent number you can compare across brands.
- Find franchised units at the start of the year in Table 1.
- From Table 3, add up the exits: terminations, non-renewals, reacquisitions by the franchisor, and units that ceased operations for other reasons.
- Divide total exits by units at the start of the year. That is your annual exit rate.
- Calculate a second rate that adds transfers from Table 2. Transfers are not closures, but each one represents an owner who left.
- Repeat for all three years to see the trend.
A hypothetical example
Consider a hypothetical system with these figures for one year:
| Measure | Number |
|---|---|
| Franchised units at start of year | 200 |
| Terminations | 6 |
| Non-renewals | 2 |
| Reacquired by franchisor | 3 |
| Ceased operations, other reasons | 9 |
| Transfers | 14 |
Exits total 20, so the exit rate is 20 divided by 200, or 10 percent. Adding transfers brings owner turnover to 34, or 17 percent. Neither number is good or bad on its own. What matters is how it moves over three years, how it compares with other systems you are considering, and what former owners say about why they left.
How to interpret what you find
Openings versus closures
Healthy systems usually open more units than they lose. A system that sells many franchises but shows net growth near zero may be replacing failing units with new buyers. Compare openings with the projected openings and signed-but-not-opened figures from Table 5.
Transfers
Transfers are the hardest number to read. An owner who retires after a decade and sells to a buyer at a fair price is a good outcome. An owner who sells for far less than they invested to get out from under a lease is not. Both show up as the same line in Table 2. Calls to former owners are the only way to know.
Ceased operations for other reasons
This category often captures closures where the franchise agreement was not formally terminated, such as an owner who simply stopped operating. A large or rising number here deserves a direct question to the franchisor.
Reacquisitions
When the franchisor buys back units, the reason matters. Some franchisors reacquire struggling units to protect the brand. Others buy successful units to grow company revenue. Ask which it was.
Company-owned trends
Compare company-owned growth with franchised growth. A franchisor that is closing its own units while selling franchises in the same markets should explain why. A franchisor that operates units successfully has firsthand knowledge of the economics you are buying into.
State-level patterns
Because the tables break out by state, you can see whether closures cluster in certain regions. If you plan to open in a state with heavy closures, ask what went wrong there. It might be a single multi-unit operator, a regional economic hit, or something about the model that does not travel well.
Use Item 20 with Items 19 and 21
Item 20 is most useful when you read it against the items around it.
- Against Item 19. If the item 19 financial performance representation excludes closed units, use Item 20 to see how many units were left out. A strong average built on a sample that excludes every failed unit tells you less than it seems.
- Against Item 21. If the franchisor financial statements show revenue driven heavily by initial franchise fees while Item 20 shows slow openings, the franchisor may depend on selling territories more than on royalties from successful units.
- Against Item 3. If closures spike in the same years franchisees filed lawsuits, the two are likely connected.
Our full guide to the franchise disclosure document shows how all 23 items fit together.
How to use the Item 20 contact lists
The franchisee lists are the most valuable pages in the FDD. They give you direct access to people who have lived the business.
Build a call list with a mix of owners:
- 4 to 6 current owners in markets similar to yours
- 2 to 3 owners who opened within the last two years
- 2 to 3 long-tenured owners
- 2 to 4 former owners who left in the last year
Do not let the franchisor choose all your calls. Franchise sales teams often suggest a short list of happy owners. Those calls are useful, but they are not a representative sample.
Calling former owners takes tact. Some are happy to talk. Some are bitter. Some are bound by confidentiality agreements. Introduce yourself, explain that you are considering the brand, and ask if they would share what they learned. Weigh one angry call against the pattern across all of them.
For a full script, see our list of questions to ask a franchisor and the validation questions in this cluster. The FTC’s consumer’s guide to buying a franchise also recommends speaking with current and former owners before you buy.
Questions to ask the franchisor about Item 20
Bring your calculations to the franchisor and ask:
- What were the main reasons for closures and terminations in each of the last three years?
- How many of the transfers were sales at a profit versus distressed sales, if you know?
- How long does the average new owner take from signing to opening?
- Why have so many signed franchisees not yet opened, if that number is high?
- Were any closures concentrated with a single multi-unit owner?
- Have you required former owners to sign confidentiality agreements as part of exit settlements?
A good franchisor will answer directly and without defensiveness. Vague answers to clear questions are information too.
Your next step
Item 20 tells you how owners fare inside one system. It cannot tell you whether that system fits you. Before you invest your evenings calculating turnover rates, narrow your search to industries that suit your goals and involvement level. Our guide on how to buy a franchise lays out the full process, and you can take the free Franchise Genie assessment to see your owner archetype and three industry categories that fit.
Frequently Asked Questions
What is a good franchise turnover rate?
There is no official benchmark, and acceptable turnover depends on the industry, unit age, and economic conditions. The more useful test is direction and explanation. Compare a franchisor's turnover over three years, compare it with similar brands you are evaluating, and ask former owners why they left. Rising turnover with no clear explanation deserves serious questions.
Are franchise transfers a bad sign?
Not automatically. Transfers include owners retiring, relocating, or selling a successful unit at a good price. They can also reflect owners selling at a loss to escape a struggling business. Item 20 does not tell you which. Call the former owners listed in Item 20 and ask why they sold and whether they would buy again.
Can former franchisees legally talk to me?
Usually, yes, but some may have signed confidentiality agreements that limit what they can say about their experience. The FTC Franchise Rule requires franchisors to disclose in Item 20 whether franchisees signed such clauses during the last three fiscal years. If that disclosure appears, expect some owners to be guarded and widen your list of calls.
What does franchises sold but not opened mean in Item 20?
Item 20 includes a projection of new outlets expected to open in the next fiscal year and often shows franchise agreements signed but not yet opened. A large gap between territories sold and units actually opened can mean slow site selection, financing problems, or aggressive franchise sales. Ask how long the average signed owner takes to open.