In my over three decades experience as a franchise consultant, I am often asked “When you franchise your business, what are some of the most important considerations?” Here, I will examine one of those issues: if you franchise your business, what are some alternatives to giving out financial performance representations (FPR’s) or earnings claims.

When you franchise your business, a frequent issue is whether to give out FPR’s to prospective franchisees to help convince them your franchise opportunity is a good investment. In the previous four blogs, I addressed various aspects of this topic:

  1. The definition of FPR’s and the FTC rules pertaining to them.
  2. The negatives of giving out FPR’s.
  3. The positives of giving out FPR’s.
  4. Special circumstances impacting the decision to give out FPR’s.

Always remember when you franchise your business any FPR must have a “reasonable basis”.

Certainly the decision to give out FPR’s involves considerable risk and should not be undertaken lightly when you franchise your business. However, there are some alternatives you may utilize rather than giving out FPR’s.

Here are some examples you may wish to consider when you franchise your business:

  1. It is considered a FPR if you show expenses for a typical franchise location as a percentage of gross revenues when you franchise your business. The reasoning behind this is you are allowing your prospect to see the potential profit. On the other hand, you are allowed to reveal to a prospective franchisee only the expenses for your typical franchise location without it being deemed to be a FPR.
  2. Sharing industry averages with a franchisee candidate when you franchise your business is not considered to be a FPR as long as you do not represent these averages as the actual operating income and expenses that can be anticipated with your specific franchise opportunity.
  3. You may choose to offer for sale as a franchise one or more franchisor-owned locations when you franchise your business. If you so do, you are allowed to show the actual financials for the specific location. When you franchise your business, you can sell a location currently in operation for a much higher amount than simply an initial franchise fee — its value as an existing business with assets and a developed customer base.

As with many areas of enterprise, there are substantial potential risks and rewards involved in providing FPR’s when you franchise your business. You may choose to avoid the risk by not giving out FPR’s. However, you may decide that the rewards of selling franchises more quickly are worth the risk.

Thinking About Franchising?

NFA Franchise Consultants have the experience to help businesses franchise.  Just watch and listen to some of our client case studies and video testimonials.  We can HELP YOU and it doesn’t cost anything to call and talk to us! 

So, if you are still asking the “should I franchise my business” question over and over with no clear direction, give us a call at (706) 356-5637, or contact us through our online form.  We look forward to helping you take your business to the next level and beyond.