Once you have made the decision to franchise your business, there are many legal factors you need to consider when creating content for your franchise website or marketing materials. To ensure you are in full legal compliance, it is always advisable to work with a seasoned franchise attorney to aid in creating these documents. One of the main claims you will want to avoid making on any franchise website or marketing materials is franchise earnings claims.
What are Franchise Earnings Claims?
A franchise earnings claim is information provided to prospective franchisees, in order for them to understand and predict their potential earnings from opening a franchise business with a particular company.
Can a Franchisor Ever Provide Franchise Earnings Claims?
Yes, but only through Item 19 of the Franchise Disclosure Document (FDD). This particular Item is a Financial Performance Representations (FPR) and is the only legal way for a franchisor to make claims about earnings and/or show franchisees revenue from its other locations or corporate office. A Financial Performance Representations protects franchisees from being misled about the level of sales or gross profits they could incur from their business.
Are There Financial Performance Representations which are Illegal?
It is important for franchisors to remember that any FPR made outside of the FDD are illegal. To ensure that you stay within legal compliance, it is critical not make claims such as the following outside of the FDD.
Phrases such as “You will break even within 6 months of opening,” “You will receive a 100% return on investment your first year in the business,” and “This job will guarantee you can afford to buy a new car every year,” are all examples of what not to say.
Understanding franchise earnings claims can be complex, especially if you are new to the franchising world. If you have any questions on these claims, reach out to my office today and we will schedule a free consultation.