Bundy Law Firm PLLC May 14, 2012

Franchisors are not required by the Federal Trade Commission or by most state statutes to provide prospective franchisees with information about how well their current franchisees are doing financially or how well their company-owned outlets are doing. 

Rules and statutes aside, the best franchise opportunities do provide such information.  They understand that the most important question on the mind of every prospective franchisee is how much money they can make if they invest in the franchise.  Every prospective franchisee asks the question.  Every experienced franchise attorney will tell you that this is the single most critical bit of information. 

In my thirty years of experience there are only three reasons (only one real reason) that franchisors do not give financial performance information if they have more than two or three outlets, franchised or not, that have been in business for at least a full year.  First, franchisors will say that they cannot give financial performance information because they cannot rely upon their franchisees to give them truthful information.  That is nonsense.  They rely upon the information from franchisees for every other business purpose.  They have the power to enforce their contract–which in almost every case requires truthful reporting.  Second, some franchisors claim that to provide financial performance information would put them in trouble with the Securities and Exchange Commission.  There may be a handful of very large franchisors for whom this is a legitimate concern–particularly if they are not providing accurate information to either the franchisees or the SEC.  However, only a small fraction of franchisors are publicly traded and subject to the SEC rules.  Finally, the real reason:  if they provided truthful information no one would buy the franchise.  They don’t disclose how their existing outlets are performing because they are performing poorly–or flat out losing money. 

If you are considering investing in a franchise, look only at the best franchise opportunities–those that provide financial performance information.  You will be looking only at the cream of the crop and you will save yourself enormous grief down the road.  The success of your franchising experience may well depend on it.