In an effort to help you understand industry terms, Franchise.com explains earnings claim.
What is an earnings claim?
An earnings claim is a statement made by the franchisor about the past performance of franchisees or to the potential financial performance of a franchisee. If given, the details must be disclosed in section 19 (Item 19) of the FDD (Franchise Disclosure Document). It gives you a sense of how much money you can make in the business.
To see an example of an earnings claim tap here. Merlin 200,000 Miles makes an earnings claim:
Merlin offers incredible earning potential, with the average Merlin showing annual sales of $915,000.* *Please see Item 19 of our FDD for further earning details.
So does D1 Sports Training here and Maaco’s.
Can I make that much?
When you read an earnings claim, first take into account that revenue and profit are not interchangeable. Revenue is the amount of money that’s brought in by the franchises’ business activities. Profit is the money that the business makes after deducting the expenses.
Make note, your expenses are going to be different from other franchisees. For example, the costs for things like materials, equipment, insurance, real estate, and taxes are going to vary in different parts of the country.
If a franchise doesn’t have an earnings claim how will I know how much money I can make?
The essence of having an Item 19 is to provide you with information to make a wiser and more informed decision about buying that particular franchise. Be sure to reach out to multiple sources before finalizing your projected income.
About 50% of franchisors provide information in an Item 19. That information alone will not be enough to build a full P&L (profit and loss statement). Therefore, the best way to estimate how much you can earn is by talking to existing franchisees. After you get all the information and fill in the blanks, you can make an educated decision.
To learn more about the Franchise Disclosure Document, tap here.
When you find a concept you are passionate about, research it. Then, you can feel confident about making your decision and building a successful business. If you have the desire to achieve your goals, you will.
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