Determine Profitability

Figure out how much you can expect to make in franchising with the help of our expert.

The one burning question every person looking to make an investment asks is, "How much money can I make?" Stockbrokers will give you historical trend data, research and their opinions before you make any market investment. Companies, in their private offering memoranda or prospectuses, will provide you with reams of past financial data, management's opinions on future events and projected financial results. In this information age, data on current and projected financial performance is so readily available that most investors don't think twice before asking about profitability. They just expect that information to be available. Besides, who would even consider making an investment without that knowledge? The great surprise for prospective franchisees is that most franchisors won't answer that question for you. It's not that they can't: Item 19 of the UFOC provides franchisors with an opportunity to give past and prospective information. It's that they choose not to. Franchisors give numerous reasons for not providing this data: potential legal liability; the possibility of compiling an inaccurate or incomplete disclosure based on the information provided by franchisees; the belief that their locations may be so diverse in size, maturity and markets that a compilation of information would be misleading; the protection of trade secrets that might be revealed in the disclosure; and the cost of accumulating the information. For some franchisors, the reason is even more basic-their systems' numbers are so bad that if they disclosed them, no one would ever considering buying their franchises.

Michael H. Seid is the managing director of Michael H. Seid & Associates, a management consulting firm specializing in the franchise industry. Seid recently co-wrote Franchising for Dummies (IDG Books) with Wendy's founder Dave Thomas.

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