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How can I find out the financial performance of franchises?
Often franchisors will present prospective franchisees with financial projections in relation to a franchise. Franchisors may illustrate what sort of gross and net profit might be achieved if certain turnover levels are reached. Sometimes franchisors show illustrations of what the franchisor or a franchisee have actually achieved in practice. A franchisor should clearly state which of the alternatives he has chosen for his illustration. You should always remember that even if you are provided with a great deal of detailed financial information, financial projections are not promises of performance. The success of your franchise will depend on your own individual skills and commitment. If a franchisor does not provide you with any financial projections then you should ask for information regarding the financial performance of the franchise. The sort of questions you should ask are: “¢ what level of gross profit margin the franchise should expect to achieve? “¢ what level of turnover a franchise would need to achieve to break even and how long should it take to reach that level? You should also ask if actual franchisor or franchisee accounts have been used to provide these projections. If actual accounts have been used, you should ask to see them. If actual accounts have not been used for projections, you should ask how they have been calculated.
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