How can I determine a true projection of earnings for a franchise?
Opinions expressed by Entrepreneur contributors are their own.Sad but true--this is a frustration that many people experience when investigating in a franchise opportunity.
The FTC, which regulates the sales process in franchising, allows a company to provide the type of information on revenue, costs and/or earnings that you are seeking but only in a very specific and controlled manner under Item 19 in the FDD disclosure document you receive from the company.
Outside of this, the company is not allowed to provide earnings claims or specific information to you on this topic.
I'm guessing that the franchise you're working with doesn't provide the data you want in an Item 19 disclosure. Only a small percentage of franchise companies take advantage of this opportunity to do so, for any number of reasons.
They usually say that you'll have to contact existing franchisees to find this type of information but it is often difficult to get detailed answers concerning their historical financial performance from existing franchisees.
The best advice is that you should NEVER sign up for a franchise unless you are confident that you have a clear and accurate idea of what you should be able to expect in terms of financial performance.
Regardless of how you end up getting this information, tell the franchise company that without it you will not proceed.