How much money can I make?

It’s a simple, reasonable question that complicates life for franchisors. Let me offer this advice: Don’t make the mistake of asking the franchisor or the sales people. They will and should tell you that the FTC prohibits them from giving you that information. It’s to protect you. So if they scribble numbers on a cocktail napkin or let loose with a range of figures in a casual conversation, buyer beware. The information is available and best captured from two sources—one more reliable than the other. First, in your due diligence you’ll have an opportunity to contact and ask questions of existing franchise owners. Most will be willing to share with you their sales numbers, if not their actual P&L statements. This will be helpful in building your own forecasts. However, if you rely on their information, dig into the numbers because they could be dumping personal costs into the expense side of the ledger and skewing the tally. The best source for your return on investment is the Earnings Claim, listed as Item 19 in the franchisor’s Franchise Disclosure Document. The Item 19 is based completely on historical data from the company’s units and may include the following information: Various costs, ranges of sales at actual locations, statistical data about operations, and any other pertinent financial information. In the franchise industry we consider the Item 19 legitimate because it is a formal, written, historical representation of earnings. Now the FTC does not require a franchisor to provide an Item 19, and believe or not, only about 20% of franchisors do and for any number of reasons. If a franchisor does not provide one in the FDD, you have every right to ask why there isn’t an earnings claim. How the franchisor answers your question can be very revealing. As I say in my Tannerisms, “Maybe they don’t want you to see how they’re doing.” You’ll find out soon enough when you talk with franchisees, but franchisors should answer the question, no matter how they choose to spin the information. “How much money can I make?” Your best source for an answer is the franchisor’s FDD. The next best are the franchise owners. But, get your question answered. It has to be the #1 reason you’re buying the business.

Posted in Franchise, Franchise Information

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