An Investigative Report on Franchise Profits

BY Jason Daley, Entrepreneur.com, 21-10-2013

Secret sauce: Dean Clarino of Teriyaki Madness.

Franchisors are pretty upfront about what it's going to cost to get you into their systems. They happily outline franchise fees, royalties, marketing requirements and grand-opening costs, and they can ballpark figures for potential franchisees on everything from the amount of printer paper they'll go through each month to the best deals on neon signs.

But franchisors are bashful when it comes to talking about how much moolah franchisees can actually earn running their businesses.

This reluctance makes sense to a certain extent. Any earnings claims that a franchisor makes, either outright or implied, can open the company up to a lawsuit if a disgruntled franchisee doesn't reach those goals. Instead, franchisors direct candidates to their Franchise Disclosure Document (FDD), the detailed prospectus they are required by law to give to interested investors.

Item 19 of the FDD details the financial performance of the franchise and offers a snapshot of the average revenue a franchisee makes. But Item 19 is often calculated with a sleight of hand that would make a magician proud, with the numbers spun to put the system in the best possible light. The earning ranges documented can be so large (e.g., $50,000 to $500,000) as to be meaningless, if they are shared at all, since filling out Item 19 is optional.

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