Financial Performance Representation | Sample Franchise Disclosure Document | Item 19

Sample Item 19-1: Financial Performance Representation
(Based on Actual Historical Performance Results)

ITEM 19: FINANCIAL PERFORMANCE REPRESENTATION

The FTC’s Franchise Rule permits a franchisor to provide information about the actual or
potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances.

Half of existing Belmont Mufflers franchisees in large metropolitan areas have had at least
$200,000 in annual sales.

Some outlets have sold this amount. There is no assurance you’ll do as well. If you rely upon
our figures, you must accept the risk of not doing as well.

Bases

These sales figures are derived from the actual historical performance of Belmont franchisees in four large metropolitan areas: New York City, Boston, Chicago, and Los Angeles. These sales figures were achieved over calendar years 2005 and 2006.

There are 258 Belmont franchisees in the entire Belmont system, of which 100 are in New York City, Boston, Chicago, and Los Angeles. Of the 100 Belmont Muffler franchisees in these cities, we studied the sales figures from 90 standard 6-bay franchised outlets. Of the 90 franchisees, 50 attained at least $200,000 in annual sales, which is 50% of the franchisees in these cities.

Assumptions

Our study measured Belmont franchisees’ performance in large metropolitan areas. The market where your Belmont Muffler shops is located, however, may be in a smaller urban or suburban area.
Accordingly, the results achieved by these franchisees may not be typical for those in your area.

Further, each of the franchises studied has been in business at least three years. A separate
market study we commissioned that was prepared by HFG Associates, an independent consulting firm, indicates that Belmont franchisees in their first year of operations are likely to achieve half the sales of those operating in business for three years or more.

Our study, the HFG Associates study, and other financial information that forms the bases for our financial performance representation are available to you upon reasonable request.

Sample Item 19-2: Financial Performance Projection
(Based on Projected Results)

ITEM 19: FINANCIAL PERFORMANCE PROJECTION

The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances.

We estimate that the most probable net income for your first twelve months of operation is
$50,000.

This income figure is only an estimate of what we think you can earn. There is no assurance
that you’ll do as well. If you rely upon these figures, you must accept the risk of not doing as well.

Bases

This projected income figure is derived from the actual historical performance of first-year Belmont franchisees.

There are 258 Belmont franchisees in the entire Belmont system, of which 70 began their first year in operation in calendar years 2005 or 2006. Of these, 54 franchisees responded to our survey and submitted data, and 35 (or 50% of first-year franchisees) reported attaining at least $50,000 in annual income from their franchises.

Assumptions

Forty-five of the franchisees included in our survey are located in large metropolitan areas. The market where your Belmont Muffler shop will be located, however, may be in a smaller urban or suburban area. Accordingly, the results achieved by the these franchisees may not be typical for those in your area.

The above projection also assumes a stable supply of pipe, no additional competition for muffler parts and services, and retail price increases of no more than 3% in the next year.

Our study, the HFG Associates study, and other financial information that forms the bases for our financial performance representation are available to you upon reasonable request.

CREDIT: The content of this post has been copied or adopted from the Federal Trade Commission’s Franchise Rule Compliance Guide.