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               Earnings Claims

What are Franchisor Earnings Claims ?

As you might have assumed, an earnings claim is any information you give to a prospective franchisee which allows you to attempt to predict a range or level of potential sales, costs, income, or profits.

Franchisors Can Provide Information about Earnings Potential Legally !

Often, people believe that by law, franchisors cannot provide prospects with any information on earnings potential. This is, in fact, not the case at all. You have the option of providing this information, if you want to disclose your financials to prospective franchisees.

Most franchisors will not include earnings claims in their UFDD. This is completely legal as well. Some franchisors simply do not feel comfortable giving this data to prospects. In the UFDD, a legal earnings claim, if made available will be in Item 19 of the document. Item 19 is based completely on historical data from the company's units and may include the following information: various costs, ranges of sales at actual locations, statistical data about operations, and any other pertinent financial information. Item 19 is legitimate because it is a formal, written, historical earnings claim. Earnings claims that are not historical, written, or formal (filed with states) are not legal and cannot be accepted as legitimate.

As the franchisor begins making sales, questions will inevitably surface about earnings potential for the franchise. Franchisors should be provided a summary of the rules related to earnings claims, beginning with the fact that a "claim" includes not only a statement of projected earnings, but also a statement of the actual results of particular units, and system averages. The compliance letter should explain the difference between "puffing" and "earnings claims," as described in the commentary to the FTC Franchise Rule

Prospective franchisees are often surprised to find that most franchisors won't say how much money can be made with their franchises. It's not that franchisors are legally prohibited from providing any information about earnings potential, a myth repeated by some franchise salespeople and brokers. Many franchisors choose not to, and they have a host of reasons-some good and some not so good.