Issues of Earning Claims for Franchisors and Franchisees (Part A)

As a franchisor in New York, you should be realistic in your earnings predictions to potential franchisees. And as a potential franchisee, you should do your homework before investing in a franchise in New York. When both parties are honest and thorough in the franchisor/franchisee relationship, there is the best chance of success for a franchise.

Stating a Franchisee's Earning Potential

Under U.S. franchise law, a franchisor in New York must provide franchisees with specific disclosures. These disclosures must be provided in the Franchise Disclosure Document (FDD), and they must include financial information, such as the franchisor's balance sheet. However, before investing in a franchise in New York, a potential franchisee may request additional information.

One of the additional things that a franchisee may request is an "earning claims statement." In this statement, a franchisor in New York may include actual, average, projected, or forecasted franchise sales, as well as average, projected, or forecasted franchise profits or earnings. While this information is not required to be provided by franchisors, a franchisor who refuses this information may have something to hide.

If a franchisor in New York does provide this information, a potential franchisee should review this information thoroughly. Earning potential should be based on realistic claims, and provide numbers that substantiate a franchise opportunity.

If you do receive an earnings claims statement from a franchisor, and the earning potential seems misleading, you may want to get the professional help of a New York franchise lawyer. An experienced lawyer can review the financial statements that have been provided, and can help assess the true potential of a franchise in New York. If the information seems misleading, a franchisee may want to look for different opportunities.

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