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What are a franchisor’s projected income figures based on?
The projections are likely to set out the level of income a franchisee might expect to earn over a period of time. The franchisor may also set out different projections to reflect the different levels of performance of the business. However, while these projections should theoretically have a sound basis, it should be noted they will not be guaranteed by the franchisor, and the franchisee will not usually be able to rely on them if the business does not perform in accordance with the projections. Where the franchise is a relatively new concept, with no or only a few franchisees, the projections are likely to be based on any pilot franchise the franchisor has undertaken, or perhaps where the franchisor has been operating the business as a pilot franchise business itself (although the information generated from this operation may be less useful). Where the franchise business has been established for some time, projections are likely to be based on information gathered from existing franchisees. However, the best source of information will be where the potential franchisee is thinking of taking on an outlet that is already operating the franchisor’s business, as there should be a trading history. While the franchisor may provide some financial information, a prospective franchisee should carry out their own due diligence to try and form his own ideas of projected income.
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