It’s that simple. Passion for the brand is great, but passion doesn’t put money in your pocket.
The importance of knowing how much money you can make when you’re buying a franchise can’t be overstated. Having accurate and detailed sales and expense data makes it easier to understand the benefit of buying a franchise. Expense data enables you to construct a more accurate pro forma income statement and cash flow projection to make sure the investment is healthy. As part of our research into franchisee investment risk, we grade Financial Transparency. Those franchise systems with expense data receive an A or A+ for the Financial Transparency grade.
Franchisors aren’t required to disclose financial information about their franchisees. This information is referred to as a Financial Performance Representation (FPR), and is done in Item 19 of the Franchise Disclosure Document. Because this information isn’t mandatory, some franchise systems don’t provide any financial data, which should raise some serious red flags for potential investors.
After all, if franchisees are making money, why wouldn’t the franchisor want to tell you about it?
When crunching numbers in our database, we found a relationship between a strong FPR and successful franchise systems. The following Facts & Figures reveal the results of our analysis on the growth of 1905 franchise systems over a 6-year period, based on financial transparency within Item 19 disclosure.