Item 19 Financial Performance Representations (FPR) are a key component in any prospective franchisee’s due diligence process. FPRs help them to analyze a franchise investment for the opportunity of a return. They are critical in constructing a pro forma income statement and cash flow projections.
Our research into new franchise growth indicates that those franchisors who include an Item 19 FPR in their FDD have a distinct advantage over their competition.
Item 19 FPR presentations can take many forms. A number of franchise systems are quite transparent, providing complete profit and loss statements. The majority provide a system-wide average and typically present tiers or quartiles and gross revenue. Some presentations even combine franchisor and franchisee locations, while others present the top grossing location in addition to quartiles.
Given the opportunity to present Item 19 data in different ways, there is little reason for a franchisor to withhold the information. In fact, we have found that between social pressures and the increased due diligence efforts of prospective franchisees, it has become clearly disadvantageous for a franchise system to exclude Item 19 FPR data from an FDD.
New York Times investigation into the use of questionable practices by one its Franchise Development Agents that culminated in the agent acquiring two of a franchisees Subway stores.
Multi-unit franchising grows in popularity, in the Quick Serve Restaurant sector, this model continues to expand into other franchise sectors in popularity.
Detailed studies on emerging franchise success rates, errors in Item 20 disclosure and sector performance, Franchise Grade’s reports help you.
New franchise growth is the top priority for emerging franchise brands. Many of these franchises have an obstacle on the road to more franchise locations.