Approximately 80% of franchisors now include an Item 19 in their Franchise Disclosure Document (FDD), even though it is not mandatory. It’s crucial to understand that a franchisor cannot legally promise, “This is how much money you’ll make in our system.” Jania Bailey, CEO of FranNet, emphasizes the importance of conducting thorough research and encourages you to speak with current franchisees to validate your potential earnings, drawing from her extensive background in banking.
Video Transcript
80% of franchisors now will have an Item 19. It’s still not a requirement. So if you see an FDD, and you go to the Item 19 and it says that this franchisor has elected not to make an earnings claim – basically a financial performance representation. Realize that they cannot tell you that “here is how much money that you will make.” So when they do make the earnings claim or full disclosure Item 19, it’s going to be sliced and diced in different ways.
Some of my background that I didn’t disclose is that I was a banker for 18 years so I get into numbers. When I see these representations, I always think, “what have they NOT shown us?” So they may show you this is the range of gross income for franchisees that have been in business from two to five years or this is the range of a franchisee’s gross revenue between five years and up. So they may group them in different ways. They may or may not show you expenses – they may only do top line. Some will do top line and expenses. So you can’t totally feel like you can take this information and prepare your projections.
You’re going to have to talk to franchisees again – you’re going to hear me say that a lot if you’re working with us. The most important thing that you can do is talk to franchisees and find out what is realistic. As there is in everything else, there is the bell curve. Not everybody is the top performer. So you want to find out what’s top, what’s middle, what’s bottom, and then where you are going to wind-up.