Researching How Much You Will Make?

Any rational potential franchisee investor wants to know how much money he or she will make and how the franchise will perform financially. Yet, when researching a potential franchise opportunity, one of the most vexing aspects is finding such information. Why do we say that? Well, franchisors are restricted by law from providing any performance information unless it is disclosed formally in Item 19 of the UFOC. However, most franchisors have no such disclosures and therefore have no earnings claims information. So, where do you turn for the answers to this vital question?

One word: FRANCHISEES. They are your primary research source as they are not in any way restricted by laws and are therefore free to share any information you require. Remember, those franchisees were once in your shoes before they bought the franchise and so they will be sympathetic. They understand that you need this information. When you gather information from franchisees, note what they say very carefully and use the information as one factor when working with your accountant to prepare a conventional set of financial projections. Ask questions on all aspects of the franchise including training, support and financial performance. Ask the franchisee whether the business has been successful or not in their eyes. Ask them about their gross sales of the previous year and then ask the most important question: If you could do it all over again, would you invest in this franchise again? Note their response. However, when wanting to chat to franchisees, remember to respect their time. Make an appointment for a convenient time before or after a busy period when you can meet in person and have a purposeful discussion.

Another aspect you can follow is to ask your accountant to help you examine the franchisor’s audited financial statements in the UFOC. Sometimes the presentation will break out royalty revenue from franchisees and may give you an idea of the average franchisee’s revenues.

If, however, your franchisor is among the few franchisors that provides earnings information in their disclosures, examine Item 19 and pay attention to the data qualifications and limitations discussed in the footnotes.

Read the UFOC, chat to current franchisees and even call a few former franchisees. Ask hard-hitting questions. You will soon form a clear picture of the company and its franchise program as well as making the decision whether or not to invest in the franchise with confidence.

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