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What are franchisors’ financial projections for their franchises based on?
Whether franchisors should provide ‘projections’ to potential franchisees is a moot point, but they will certainly be likely to provide xamples of financial performance from within their network, which help with the preparation of the franchisee’s business plan. What these examples should be based on is facts. Those facts may come from the operation of company-owned outlets, the results of pilot franchisees, or the average or individual accounts of franchisees who have been trading for some time. Ideally they should be from a similar-sized outlet or territory to that being discussed with the prospect. They should also demonstrate how the outlet’s incomes and profits grow over, say, the first three years. Wherever they come from, their source should be clearly stated on all projections, and that source should be verifiable by the potential franchisee when doing their research. What the franchisor should never do is suggest to the potential franchisee that they will achieve a particular level of sales because, even if everyone else is achieving it, performance will depend on the effort and application of the individual concerned. Those franchisors who claim to provide ‘guaranteed turnover’ should also make it clear that turnover does not guarantee profit, at any level. One of the many advantages of considering a British Franchise Association member franchisor is that the association’s code of ethics requires that franchisors adhere to the principles outlined above.
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