Q: Can I request a franchise's sales figures from the franchisor?

Andrew Pena

Founding partner, Cubism Law

A: There is no legal requirement for a franchisor to provide sales figures.However, there is no reason why you cannot request such information and make that conditional on you pursuing the franchise opportunity. Alternatively, the bfa’s code of ethics requires a franchisor to provide you with details of its franchisees. As part of your due diligence, you should contact as many of these as possible and seek the information directly from them. 

How can you then ensure that the figures are accurate? Firstly, I would apply the common sense test: do the figures seem credible, how have they been arrived at and what assumptions have been made? Secondly, I would compare the figures quoted against the actual performance figures of trading franchisees. Thirdly, I would investigate other similar franchise opportunities and compare the sales information being provided by each company. Finally, I would get a franchising specialist to review the information to make sure they were satisfied I was getting a credible and accurate picture of likely performance.

 

Peter Williams

Franchise consultant

A: In contemplating your future as a franchisee, assessment of the prospective financial rewards is a very important part of the research process.   Franchisors recognise this and routinely make relevant information available, through illustrative trading projections. The figures will no doubt guide you in decision-making and, if you go ahead, in the preparation of your business plan. Therefore you need to know what the figures are based on. For example, are they purely theoretical? (If so, your conclusions as to the possibilities will be largely intuitive). Or are they based on actual performance of the original business? Do they reflect the track record of a pilot scheme franchisee? Or do they amount to the average trading achieved by existing franchisees within the network?

Whichever apply, your understanding needs to be unequivocal, and for the avoidance of doubt it would be reasonable for you to request evidence in the form of audited or management accounts (for which a confidentiality agreement might be necessary). Such disclosures serve to show how the business has performed and you might assume that if it works well in an area demographically similar to the one you are contemplating, there is no reason to suppose that you should not be successful also. But you must bear in mind that accounting information, however detailed, should not be taken as an assurance of success and you will probably find that franchisors issue a disclaimer to that effect. Inevitably, your ambitions will be accomplished by following proven systems and procedures diligently, together with essential input of personal energy and effort.