Franchise Earnings Claims
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Prospective franchisees are often surprised to find that most franchisors won’t say how much money can be made with their franchises. Many franchisors do, however, make earnings claims under section 19 (Item 19) of the FDD (Franchise Disclosure Document) .
Q. What is an earnings claim?
An earnings claim is a statement made by the franchisor about the past performance of franchisees and/or to the potential financial performance of a franchisee. If given, the details must be disclosed as Franchise Performance Representations under Item 19 of the FDD. It gives you a sense of how much money you can make in the business.
Q. Can I make that much?
When you read an earnings claim, first take into account that revenue and profit are not interchangeable. Revenue is the amount of money that’s brought in by the franchises’ business activities. Profit is the money that the business makes after deducting the expenses.
Of course, your expenses are likely to differ from other franchisees. For example, the costs of materials, equipment, insurance, real estate, and taxes are going to vary in different parts of the country.
Q. Do all franchises make earnings claims?
About 50% of franchisors provide information in an Item 19. The essence of having an Item 19 is to provide you with information to make a wiser and more informed decision about buying that particular franchise.
Of course, that information alone will not be enough to build a full profit and loss statement. The best way to estimate how much you can earn is by talking to existing franchisees.
To learn more about the Franchise Disclosure Document, click here.
For more of the information, contact Steve today. Email email@example.com or phone 941-556-1300.