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Can a franchisor guarantee future franchisee earnings?
Very few franchisors will be prepared to make representations or give guarantees of what financial performance will be achieved in a franchise business. However, a franchisor should be prepared to disclose actual figures that have been achieved in his operations or by franchisees. No franchisee should rely upon any financial projections as being a guarantee that they will be achieved. There can be many reasons why they are not achieved, including market trends and economic factors affecting business as a whole, as well as the franchisee’s own performance capability and deficiencies. The British Franchise Association’s Code of Ethics contains some very useful guidance for prospective franchisees on financial projections. It sets out the principles that bfa member franchisor’s should follow when presenting financial projections to prospective franchisees. Franchisor’s must clearly state the basis on which the figures were obtained. For example, a franchisor should explain if financial projections are based on what the franchisor or its franchisees have achieved in practice or are illustrations of profit performance that can be expected if certain turnover levels are achieved. Prospective franchisees can always take advice from an accountant in relation to the financial information presented to them by the franchisor.
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