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Does a franchisor have to provide me with cash flow and income projections?
There is no legal requirement on franchisors to do this. Indeed, franchisors’ lawyers will generally encourage them not to participate in the preparation of cash flow and income projections because, they argue, these are the franchisee’s projections with which each franchisee must be comfortable and should not be imposed by a franchisor. All that the franchisor should do is to provide some ‘raw’ data, which would enable a franchisee to establish his own projections. This data would consist of average start-up costs, turnover and margins. Franchisors need to be very careful in providing any financial information to ensure that it is based on average performance and that they do not paint too glowing a picture of their franchise by providing performance data that relates only to the top performing franchisees. If franchisors were to do this it could well amount to misrepresentation, which would entitle a franchisee to claim damages. Franchisors must make it clear to franchisees the basis on which figures have been prepared and should not rely simply on disclaimers in relation to the figures or on contractual provisions that seek to limit the franchisor’s liability for misrepresentations. Equally, franchisees should not assume that figures prepared by franchisors are in any sense guaranteed.
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Discussed at information disclosure stage
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