If you are considering buying a franchise, one of the most important step you must take is finding out the actual quarterly or annual earnings of the franchise you’re interested in. This information is really important to get so you will know whether or not the franchise is financially doing well.

In the sixties and seventies there were a lot of problems with franchises giving misleading information to franchisees. Due to this, the government put the Federal Trade Commission in place to regulate the franchise industry and to have the FTC create rules in regards to what information franchisors have to give to prospective franchisees.

The FTC has no restrictions on what information the franchisors want to make available to future franchisees. All the franchise must do is put the information in Item 19 or their UFOC disclosure agreement. The financial information in Item 19 must be clear and accurate as possible. This section may include information about sales, cash flow, or income.

Many franchisors are hesitant to give out their financial information. Their income, annual earnings or cash flow may not look appealing to prospective franchisees. Because of this some franchisors do not give this information out. The FTC has not made any law that the franchisor has to provide their financial information.

If the franchisor does not provide this information, you should consult one of the franchisees of the company. The franchisee can give you insight on how the franchise is doing. Finances are always very touchy to talk about. You want to be careful how you ask your questions because you don’t want to offend anyone.

You’ll want to ask how the franchisor helped the franchisee get the business up and running. Ask what kind of strategies in the beginning to the businesses name out in your location. Ask about the franchisors supply purchasing strategies. After getting some basic questions answered, you’ll want to move on to the big questions. Some of the big questions are: How much did it cost overall? How long did it take to break even? How does the company’s gross income look? Other topics you may want to bring up is net income, cash flow, and whether or not the franchisor has lived up to their agreement.

Make sure to go about the questions respectfully and politely. You want the franchisee to know that you are truly thinking of being apart of the family but want to make sure you’re making the right decision.

Good Luck!