Franchise Earnings Claims: FTC Guidance for Buyers

A familiar brand and a confident earnings promise do not guarantee a successful franchise. In an October 19 alert, the FTC urged prospective buyers to compare sales claims with the Franchise Disclosure Document before committing money.

The agency says a seller’s claims about sales, income or profits must appear in Item 19 of the disclosure document. Buyers can ask for written support for those claims and seek help evaluating whether the figures are reasonable.

The alert follows the FTC’s case against the Premier Martial Arts franchisor. The agency alleges misleading earnings claims and other representations affecting more than 200 purchasers. Those are the FTC’s allegations, not findings established by this article.

The FTC’s full franchise guide goes beyond the earnings presentation. It describes the initial franchise fee, the expense of fitting out an outlet and continuing royalties that may be based on gross revenue even when an owner is losing money. Advertising contributions and contractual controls can also affect the business. The guide says buyers must receive the disclosure document at least 14 days before signing or paying the franchisor or an affiliate. That review period is time to compare the pitch with the agreement, assess recurring obligations and ask what support is actually promised. A strong sales forecast is only one side of the business calculation.

The FTC recommends contacting current and former franchisees whose details appear in the disclosure materials. Their experience can help test the assumptions behind the pitch, including operating demands and costs.