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I’m quite close to investing in a brand. How can I be certain that the expected revenue projections they’ve supplied me with are genuine?
Shelley Nadler writes:
There are many different ways in which franchisors present revenue projections. 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 or franchisees have actually achieved in practice. A franchisor should clearly state which of the alternatives he has chosen for his illustration.
In order to properly understand revenue projections, you need to know what underlying figures the franchisor used to create them. Projections should be based on information showing what the franchisor or its franchisees have actually achieved in practice. However, no franchisee whose figures are used can be identified without his consent. It is unlikely that a franchisee will want to publish his financial details to prospective franchisees. Whilst you will not be entitled to see actual accounts that confirm any financial projections, you could ask to see the figures that were used in the calculations.
The most important thing is that you understand how the figures that you are given are prepared, so you must ask the franchisor to provide you with an explanation. No franchisor can guarantee with any accuracy any financial performance in a particular case. It is extremely important that you take your own proper accountancy advice in considering the financial aspects of the franchise being offered to you.
Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.
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