In my over 30 years of franchise consulting experience, I am often asked if a Franchisor can give financial projections or earnings claims that potential Franchisees will use to help them determine if they should purchase a particular franchise opportunity.
In my last four blogs, I have discussed several issues relating to this subject. First, we reviewed the rules and regulations regarding the preparation of Financial Performance Representations (FPRs) in Item 19 of the Franchisor’s Disclosure Document (FDD). For more details on this topic, please read NFA’s July, 2014 blog.
In our August blog, we discussed the reasons a Franchisor should prepare and disseminate FPRs for their franchise opportunity.
In September, we addressed the cons of giving out FPRs to franchise prospects interested in possibly purchasing the franchise opportunity.
Fourth, in October, “Special Circumstances” in a franchise opportunity that may influence a Franchisor to prepare and disseminate FPRs were examined.
In this blog we list some alternatives to giving out FPRs. Rather than provide FPRs to potential franchisees, a Franchisor can do the following:
- If one or more company-owned locations are for sale as franchises, the Franchisor can show actual profit and loss statements for those locations. With this approach, the Franchisor can sell the location for its value as an on-going business, often resulting in substantial profit on the sale.
- Showing only the expenses for a typical franchise operation is not considered an FPR. However, if the Franchisor expresses the expenses as a percentage of gross revenues, it is considered an FPR.
- Industry averages can be shared with the prospective Franchisee as long as they are not represented as the actual operating revenues and costs of the specific franchise.