With more and more resources at their disposal, business savvy prospective franchisees, now more than ever have the best of everything when it comes to researching a potential opportunity. Being able to match up with a franchise that can meet both your financial and personal goals is one of the cornerstones to becoming a successful business owner through franchising. Using the new format laid out with the FDD, or Franchise Disclosure Document, it is much easier to see now if the franchise you are looking into does in fact hold the potential for you to reach the goals you set for yourself.
While not every franchise is going to be able to give you a solid estimate of how much you can actually earn, they can deliver some pretty big promises based on estimates made using statistics of similar franchisees. However, there are a number of legal reasons that some won’t do this- it is not usually because the franchise has anything to hide, it’s more over a legal maneuver for the protection of the company. The projections are known as Financial Performance Representations and these can usually enable a prospective franchisee to at least get a decent idea of how well a franchise will work out for them. If you receive your FDD and there is no item 19, asking the franchise why this is can help you to also gauge the company’s integrity. As stated prior, the absence of an item 19 is not so much a red flag, and generally speaking, an honest franchise will be able to clarify to you exactly why they did not include it. This is a very important part of the document when it is included, and like all aspects of the FDD, you have to read the whole thing through and note aspects you are unclear on so that you can ask pointed questions. The only way to make a fully informed choice about this important investment, is to be fully informed. While this may sound very obvious, statistics do show that many prospective franchisees do not read the entire disclosure document in its entirety- and this causes much worse things but can lead to unrealistic expectations and failure.
For the ones that do include this section, it is absolutely vital that you full read the FPR- because sometimes, statements may be true, but padded a bit in favor of the franchise. Common ways of doing this are taking the most successful franchise locations in the company, during their most successful months and using those statistics. Paying careful attention to the way these projections are displayed, as well as how realistic they seem to you is a good way of working it through with a critical eye. Again, this is not a red flag, it’s simply smart business, however, balancing this in with your overall impressions of the company, those representatives you have spoken to, and the rest of the FDD can enable you to have a very clear picture of exactly what that franchise can do for you.