What information should a franchisor give me regarding earnings claims?

The prospective earnings of a franchise are key to whether the franchise is a good proposition for a future franchisee. Paragraph 3.2 of the British Franchise Association Code of Ethics states that: ‘Any recruitment, advertising and publicity material containing direct or indirect references to future possible results, figures or earnings to be expected by individual franchisees shall be objective and shall not be misleading.’  There are many different ways in which franchisors present financial projections as to possible future earnings. A franchisor may set forth figures based on actual performance by what the franchisor or a franchisee have achieved in practice. Alternatively the franchisor may illustrate what sort of gross and net profit might be achieved if certain turnover levels are reached. The franchisor should state which of the alternatives he has chosen for his illustration and whether depreciation, any salary and wages for the franchisee and the cost of servicing loans are included.  Even if you are provided with a great deal of detailed financial information, financial projections are not promises of performance. It is extremely important that you take your own proper accountancy advice in considering the financial aspects of the franchise being offered to you.