Earnings Claims

What are the Earnings??? Can I Make Money ??? These are the first things people ask, yet it is not the first thing they can find out. Why? To assure best practices, to follow federal guidelines and to  eliminate false claims. If a company starts out by telling you how much money you can make – be very, very leery.

The franchise system is protected against companies making misleading claims. As a consumer, you don’t want a franchise tell you about how much money the top earner is making, when most of the franchisees are losing their shirts, do you?  The best way to find out about a potential earnings is through legal documentation or from the individuals who are actually in a franchise.  This is why the federal government has structured how a franchise can deliver earnings information.

Serious prospects are given an FDD – Franchise Disclosure Document. There are 23 mandated section is the FDD. The one you will find earnings claims in in Item 19.

Item 19: Earnings claim – Earnings claims are difficult as it depends on so many factors. In this section, the franchisor provides any information that a franchisee can use to estimate what she or he can earn from the business. This may include specific levels or a range of actual or potential sales, costs, income, or profit for a franchise or non-franchised location. Please remember that these numbers are based on the franchisors current or past business, your earnings how you operate your business.

Not all franchises have information in their Item 19. That does not mean that they don’t have great earnings. It simply means they have not gone through the process to validate and change their FDD. As the competition for franchises increases. More and more franchises are including information in their Item 19.

If the franchise has left the Item 19 blank, we can assist you in asking the right questions to current franchisees to find out the earning potential of the business.

For more information about Item 19, ask your TC Franchise Specialist at 888-885-5052 ext. 102.

Posted in Franchise Basics, Franchise News, Simply Facts about the FDD, The Legal Side of Franchising.