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What should a franchisee’s earnings potential be based upon?
Generally, prospective franchisees want to know two things about the earnings potential of a proposed franchise business.
The first is how much money they’re going to make. Most franchisors respond to that on the basis that they cannot tell because it depends on how hard a franchisee works, how good they are, etc. However, most franchisors are prepared to provide average profit figures for their franchisees.
If average profit figures are offered to you, the second thing you will want to know is whether the territory that has been allocated to you (if it’s a territorybased franchise) or the location of your franchise premises are any worse than average territory/locations, and so a prospective franchisee will need to understand how each franchise territory/location is established to ensure there has been fairness in any allocation.
Franchisors are understandably weary of providing financial information because it can amount to a representation that, if untrue, would enable a franchisee to bring a misrepresentation claim.
Having said that, providing franchisors base any information they provide on average franchisee performance or an alternative method and it’s clearly set out, it’s most unlikely a misrepresentation claim will arise.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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