“How much can I make?” That is typically the first question a prospective franchisee asks when evaluating a franchise opportunity. If you are considering franchising your business, ask yourself whether you have financial information you can, and want, to provide to prospective franchisees that will answer this question.
By law, a franchisor can only give financial information to prospective franchisees in its franchise disclosure document. The information you provide can be actual, historic results, or it can be projections. However, in either case, the information must be based on actual results from your system. Thus, it is not permissible to simply give a hypothetical, such as “if you sell only $400,000 a year, here is what you will make,” unless you actually had an outlet that had $400,000 of revenues. You can use the results of company-owned outlets, so long as you show the differences, like royalty payments, that would have occurred had the outlets been operated by a franchisee.
From a practical standpoint, you can present financial information to prospective franchisees even if you have only one operating outlet. However, if that one outlet turns out to be an aberration, you are likely to have unhappy franchisees when they cannot replicate the success of that outlet. Thus, it has always been our advice that a company has financial information from at least two outlets before including financial results in their disclosure document.
If you want to franchise your business and do not have any company-owned operations, you can still offer franchises, but you will not be able to answer a prospect’s questions about what they can make. That will put you at a competitive disadvantage with other franchisors who provide this information to prospective franchisees. Indeed, the majority of franchisors now include financial information about their individual outlets in their disclosure documents.
There is one last question to ask yourself, perhaps before embarking on a developing a franchise program. Assuming you have results to show prospects, ask yourself whether the results of your existing operations would entice prospects to acquire a franchise from you. If your past results are weak, you may want to focus on strengthening your brand before embarking on franchising. After all, franchisees are buying into your success, and you want your franchise program, and your initial franchisees, to get started on the right – i.e. profitable – foot.