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What’s A Franchise Information Memorandum?
A franchise information memorandum is a term used by some involved in franchising to describe a prospectus that’s made available to someone who enquires about taking a franchise.
It doesn’t make sense for franchisors to provide a tailored document for each enquiry, so they prepare a standard document containing all the information they believe a prospective franchisee would be interested to have.
This means a FIM will contain information about the history of the franchisor’s business, individuals involved, number of franchise businesses in existence, what makes the franchise special and will also contain financial information.
It’s the financial information element of a FIM that frequently causes issues for franchisors. Inevitably, franchisors want to paint as positive a financial picture as possible about their business and therein lies the danger.
Whenever financial information about start-up costs, turnover, profit margins and so on are provided, they need to be based on the average performance of franchisees or the franchisor’s performance if, at the time, there are no franchisees.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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