When doing research about franchise opportunities, it is most often difficult to ask franchisors on how much earnings do they get from their franchise businesses. This can be frustrating since you cannot invest money in a business without any idea on how much you can earn in return. The Federal Trade Commission and a number of states have strict regulations on how franchise owners can provide such information to potential franchisees. There are however a number of ways to acquire this important information.
Why the need for government regulations on franchisors?
In the year 1979, legislation was passed by the Congress to authorize the FTC in regulating the industry to stop the bad practices of providing false earnings claims in order to sell franchises. A similar legislation was also passed by several states.
If franchising companies want to provide information regarding their earnings, they have to put the accurate data on the UFOC disclosure record. As long as legal requirements are met, franchising companies are free to supply earnings information to their prospective franchisees.
Why only a few franchisors supply this information?
There are two possible reasons why some franchisors do not provide such information. It could be that for franchisors, producing earnings claim does not come with expense and effort or potential franchisees may not find the results attractive enough to buy a business franchise.
What are the other sources of this information?
If the franchise refuses to provide the earnings claim in the UFOC, you can call and ask its other existing franchisees. In the UFOC document, the franchise fills-out Item 20 with a list of its present and previous franchisees and their contact numbers. This method can help you have a realistic expectation if you plan to start or buy a business franchise.
What level/standard of earnings is considered reasonable for franchise business?
A franchise, like any other business requires money, time, effort, and talent from you. Thus it is only reasonable to expect a higher return of investment; probably not during the first year of operation but definitely in the future. A 10 to 15 percent of investment return per year is good but aiming higher is even better.
Contrary to what most people believe, not all franchises with higher investments are able to provide higher ROI. Several low investment franchises can also provide higher ROI so make a thorough research on various franchise opportunities before saying yes to one.
The success of your franchise depends on various factors, which include the franchise structure and its years of operation. Having the enthusiasm and understanding of the franchise system can also help a lot.