International Law

Earnings Claims, what are they?

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Kerry Pipes has a good article about Financial Performance Claims, or Earnings Claimings for franchise systems.

If you get an FDD and there is no Item 19, he says [Charlie Simpson, COO of Great Clips], ask a very direct question: Why not?

"How they respond to that will you give you a glimpse of the integrity and the sustainability of that franchise."

Perhaps the most important benefit of Item 19 is to give candidates the information they need to create a realistic scenario about what lies ahead if they sign--not only of their potential ROI, but of what's required to achieve that in their market.

Disclosing earnings information also expedites the decision process. Without an FPR it could take months before a candidate finally figures out if that franchise is the right fit for them or not.

Gary Robins, a successful franchisee who owns 30 Supercuts and Cost Cutters salons in Pennsylvania and New Jersey, knows a thing or two about earnings claims.

"I certainly like agreements with earnings claims more than agreements without them," says Robins, "I use them to analyze the business risk and the return on investment."

I know Gary, he is a member of the American Association of Franchise and Dealers, and the representative of of Super Cuts Independent Franchisee Association.

An all around stand up guy, who understands the reality of franchising.

If Gary likes franchise agreements with earnings claims, then you should probably follow his lead.

Thanks now to the tremendous OpenFran.org project, I can find you a number of franchise agreements that have substantive earnings claims, because I have a beta account.

Shoot me an email, I will send you the earnings claims from a number of different franchise systems for the year 2007.

(You can thank Susan A. Maizner and Daniel G. Mainzer for this wonderful product, OpenFran.org!)

Full post as published by Misleading Advertising Law on September 11, 2008 (boomark / email).