Ask the Experts

SHELLEY NADLER WRITES:
A franchisor should be prepared to disclose actual financial performance figures that have been achieved by franchisees, although it should not identify any franchisee without their consent.

A franchisor may present financial projections to prospective franchisees that incorporate existing franchisee’s actual performance figures. But in order to properly understand financial projections you need to know what underlying figures the franchisor used to create them. You will not be entitled to see actual accounts that confirm any financial projections, and although you could ask to see the figures that were used in the calculations you probably will not be able to identify the franchisee whose figures have been used.

There are many different ways in which franchisors present financial projections. Often they illustrate what sort of gross and net profit might be achieved if certain turnover levels are reached. In this case, the gross margin and revenue expenses shown should be the same as or no better than those actually achieved by the franchisor or on average by its franchisees. Sometimes franchisor’s show illustrations of what the franchisor or a franchisee have achieved in practice, so the franchisor should clearly state which of the alternatives have been chosen for the illustration.

The most important thing is that you understand how the figures you are given are prepared and that you understand that no franchisor can guarantee with any accuracy any financial performance, as the success of your franchise will depend on your own individual skills and commitment.

Also, it is extremely important you take your own accountancy advice when considering the financial aspects of the franchise being offered to you. Back to List