FPR (Financial Performance Representations) Use In Franchise Sales
In my experience over three decades as a franchise consultant, I am often asked “What makes one franchise sales program succeed while another franchise sales program doesn’t?”
Rarely is there a single reason for success or failure in franchise sales. Here, I will examine some of the factors that can help you create a successful franchise sales program.
Franchise sales personnel must answer the first question that most potential franchisees want to know: “How much money can I make if I buy your franchise?”
The vast majority of franchisors do not give financial performance representations (FPR) during the franchise sales process because of the potential liability they may face if the franchisee does not achieve the numbers disclosed in the FPR.
However, there are some companies that are willing to run the risks of offering FPRs during the franchise sales process in order to sell as many franchises as possible.
So what is an FPR and how does it work?
The FTC definition of an FPR covers any representation, including any oral, written or visual representation, given to a prospective franchisee during the franchise sales process, including a representation in the general media, that states, expressly or by implication a specific level or range of actual or potential sales, income, gross profits or net profits.
The FPR includes a chart, table, or mathematical calculation that shows possible results based on a combination of variables.
In franchise sales, FPRs must be fully disclosed in Item 19 of the Franchise Disclosure Document (FDD). The purpose of the FDD is to disclose in “plain English” the details of the franchise program.
Prior to the implementation of the FDD’s predecessor (Uniform Franchise Offering Circular), prospective franchisees were given only the Franchise Agreement to review.
The Franchise Agreement is written in legalese, not plain English. The result was that some franchisees bought a franchise without understanding what he or she was purchasing.
To be continued next month…