The Earnings Projection: What to Consider

Author: BeTheBoss.ca

Date: OCT 13th, 2017

Topic: Industry Experts

 

As a prospective Canadian franchisee, you're naturally investigating more than one brand. One specific question that always comes up in a franchise search is the return on investment (ROI), which is essentially how much money you will make. In reality, the true answer to this from a franchisor would be that they don't know as the financial performance of a franchise depends on a lot of things, including the location and the franchisee's level of involvement and skills.

 

Earning projections 

Some franchisors will give candidates a template that allows them to enter in their own revenue and expense estimates so they can craft a business plan of their own. The template will have formulas that calculate known variables, and it's done this way because franchisors are often leery of presenting anything that is considered a solid earning claim or projection. They simply don't want to expose themselves to litigation in the future because they made earning claims to franchisees who never attained those figures. 

On the flip side, potential franchisees do need to know what their location may be able to generate, and franchisors approach this in different ways. A candidate may be able to talk to current franchisees and ask about their performance. Other franchises provide historical data, which is usually what their franchised and/or corporate units have done in the past, along with a disclaimer that past performance doesn't guarantee future results.

 

Disclaimers and disclosure documents

Provincial law in some areas, such as Ontario, requires a franchisor to state if they have provided a direct or indirect earnings projection in their disclosure document. If they do provide that projection, they also need to specify the basis for it, state the assumptions surrounding it and note the location where the substantiating information for the projection is available for inspection.

Disclaimers come in various forms when it comes to earning projections. They usually make clear that even if information regarding potential expenses, costs, profits and other earnings data was provided to a candidate, it was given to the prospective franchisee as feedback and general information only and that this sort of information was not any kind of factual claim or guarantee.

As a prospective franchisee, you'll want to know what your franchise could generate, but be aware that this information isn't something franchisors can give freely. If you're unsure about the financial aspects of a franchise you're considering, speak to a financial adviser about the brand and your business plan.