FDD Tutorial: How To Read Franchise Earnings Claims [Item 19 Franchise Disclosure Document]

Описание: When validating a franchise opportunity, many people use Item 19 of the FDD (Earnings Claims) to inform their decision to buy... The Daly Coach is here to say QUIT IT!! See why 😎

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00:00 Many people use earnings claims in a franchise disclosure document to make an investment decision. As America's Top Franchise Consultant, I want to advise you NOT to do that! I am not a franchise attorney, but I AM going to teach you what to do with an earnings claim—and it is not to make an investment decision because of it.

00:58 The origins of the franchise disclosure document
In the 1970s, the federal government started regulating franchisors and what they had to disclose to you, the potential investor. This regulation resulted in franchisors creating what is now called a franchise disclosure document.

01:40 Item 19 in an FDD
Item 19 is the only optional section in an FDD. The government does NOT require a franchisor to tell you how much money you can make in a business. The Daly Coach is here to tell you that even if the franchisor makes an earnings claim in writing, I do not believe that you should use the earnings claim to make an investment decision. What do numbers on a page tell you about an opportunity? Yes, they tell you an average earnings, but is anybody setting out to own a business planning to be average? Not anybody that I've ever met. Yet, so many people use an earnings claim as a reason to walk away from an investment opportunity.

02:34 The importance of the validation process
An earnings claim are numbers on a page, and until or unless you're willing to bring those numbers to life by understanding what it takes to create those numbers, how can you fairly assess them? Until you're able to talk to franchise owners, who can explain to you what a day in the life looks like, who can explain to you what skills they have that enable them to create those numbers on a page, how can you fairly assess what the earnings claim is saying to you?

Reading an earnings claim on paper is one thing, but it is not the only thing. And in my opinion, it's really not how you should assess a franchise’s earnings potential. I'm infinitely more interested in getting you out, talking to owners about a day in the life, their skills, what they do that drives the greatest business results, then making that connection between your skills, the time that you want to put into the business and then assessing for yourself if you believe that you can create those numbers on the page. The other thing about earnings claims that I don't like is that they can set up a limiting belief about what's possible because people take that number at face value, and they believe that's all that's possible.

But since an owner is the biggest determining factor in the success of a franchise business, how can an earnings claim tell you how much money YOU are going to make? It can't tell you. It can tell with the systems, tools, training, and support what the average person can produce. But are you investing in this business to the average? Please don't let an earnings claim set this limiting belief about what's possible. These are only numbers on a page. They don't have to be your numbers.

06:18 Why is the earnings claim optional?
The first reason is because, by law, to make an earnings claim, you have to have stores that have been open for two or more years. So if you are exploring a pioneering franchise, they might not have enough history to create that earnings claim on paper.

A bigger reason why a franchisor may not have an earnings claim is because they simply cannot make an average claim. Some franchise businesses are so owner-influenced that it's the owner's network, skill, relationships, the size of their goals, their energy level, how driven they are, their tenacity to get out there every day and go make it happen that will determine their business’s size. And that may change from year to year, so there's no way that a franchisor can make an average earnings claim.

What's most important about saying "yes" to a franchise is that you’re aligning yourself with a franchisor that you believe in and respect.

If you have questions about how to use an earnings claim or a franchise disclosure document to help you make a solid investment decision, I want to be your Daly Coach. Please leave a comment below or reach out directly at http://thedalycoach.com/contact.

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