Franchise brokers will show you the success stories. They will introduce you to the top-performing franchisees in the system. They will share the brand's growth trajectory and unit count.

What they will not show you is Item 20.

Item 20 of the Franchise Disclosure Document is the most honest data in franchising. It lists every franchise outlet that opened, closed, transferred, or was terminated in the past three fiscal years — broken down by state. No spin. No cherry-picking. Just the numbers.

Here is how to read them.

What Item 20 Actually Contains

Item 20 is divided into several tables. The most important ones are:

Table 1: Systemwide Outlet Summary — Total outlets at the start and end of each year, broken down by franchised, company-owned, and affiliate-owned. This gives you the net growth (or shrinkage) of the system.

Table 2: Transfers — How many franchises changed hands between franchisees (not back to the franchisor). High transfer rates can indicate franchisees who want out but found a buyer.

Table 3: Status of Franchised Outlets — The critical table. This shows, by state, how many outlets were opened, terminated, non-renewed, reacquired by the franchisor, ceased operations, or otherwise closed in each of the past three years.

Table 5: Projected New Franchised Outlets — How many new locations the franchisor expects to open in the coming year, by state.

How to Calculate the Turnover Rate

Take the number of closures (terminated + non-renewed + reacquired + ceased operations) from Table 3 and divide by the total number of outlets at the start of the year.

Example: 50 closures ÷ 400 total outlets = 12.5% annual turnover rate.

The FRANdata industry average is approximately 15% annually. That means in a healthy franchise system, roughly 1 in 7 franchisees exits each year — through sale, closure, or termination.

Do this calculation for each of the three years reported. Look for trends. Is turnover increasing? Decreasing? Consistent?

What Different Turnover Rates Mean

Under 10%: Strong retention. Franchisees are staying in the system, which suggests satisfaction and profitability. This is a positive signal — but verify it with franchisee calls.

10–15%: Industry average. Normal churn from retirements, relocations, and business decisions. Not a red flag on its own.

15–20%: Elevated. Worth investigating. Are closures concentrated in specific states or markets? Is there a pattern in the timing (all in year 2 or 3, suggesting early-stage struggles)?

Above 20%: A serious flag. This level of turnover means roughly 1 in 5 franchisees is exiting every year. It does not automatically mean the franchise is bad — some systems have high turnover because they attract undercapitalized buyers — but it demands a direct explanation from the franchisor and extensive validation calls with former franchisees.

What Brokers Will Not Show You

Franchise brokers are paid by franchisors when they place a buyer. Their incentive is to close the deal, not to surface inconvenient data.

A broker who earns $20,000 for placing you in a franchise with 25% annual turnover has no financial reason to show you Item 20. They will show you the top performers. They will share the brand's marketing materials. They will tell you about the support system.

Item 20 is public information — it is in the FDD you are legally entitled to receive. But most buyers never calculate the turnover rate because no one tells them to.

Now you know to.

The Difference Between Closures and Transfers

Not all exits are equal. A high transfer rate (Table 2) can actually be a positive signal — it means franchisees who want to exit are finding buyers, which suggests the franchise has resale value.

A high termination rate (the franchisor ending the relationship) is more concerning. It can indicate franchisees who are failing to meet performance standards — which may reflect a difficult business model, inadequate support, or unrealistic expectations set during the sales process.

A high non-renewal rate (franchisees choosing not to renew their agreements) is also worth examining. Franchisees who choose not to renew are voting with their feet. Ask former franchisees why they left.

Call the Former Franchisees

Item 20 also lists contact information for every franchisee who left the system in the past year. These are the people with the most honest perspective on the franchise — they have nothing to lose by telling you the truth.

Call them. Ask why they left. Ask whether they would buy the franchise again. Ask what the franchisor did well and what they did poorly. Ask whether the earnings projections they were shown matched reality.

Five calls to former franchisees will tell you more than 100 pages of marketing materials.

Use FDD Score™ to Analyze Item 20 Automatically

BIZLINX's FDD Score™ reads Item 20 and calculates turnover rates automatically — flagging brands with elevated closure rates and highlighting patterns that warrant further investigation.

It is the fastest way to get from a 400-page FDD to the numbers that actually matter. Upload any FDD and get a scored assessment in minutes.

Item 20 is the truth hiding in plain sight. Now you know how to find it.