Q: What’s a franchise information memorandum?

A: A franchise information memorandum or FIM is a term used by some involved in franchising to describe a prospectus that is made available to someone who enquires about taking a franchise. Clearly, prospective franchisees are keen to obtain information about a franchise business that they have seen either at a franchise exhibition, on a website or read about (whether in an article or advertisement) in a franchise magazine. It really does not make sense for a franchisor to provide a tailored document for each enquiry and so franchisors prepare a standard document containing all of the information that they believe a prospective franchisee would be interested to have. This means that a FIM will contain information about the history of the franchisor’s business, the individuals involved, the number of franchise businesses that are in existence, what makes the franchise special and will also contain financial information.

It is the financial information element of a FIM that frequently causes issues for franchisors.  Inevitably franchisors want to paint as positive a financial picture as possible about their business and therein lies the danger. Whenever financial information about start up costs, turnover, profit margins and so on are provided, they need to be based on the average performance of franchisees or the franchisor’s performance if, at the time, there are no franchisees. These figures cannot be plucked out of thin air, and if a franchisor is unable to justify the figures there is a real danger that franchisees will have a misrepresentation claim. As a result it is generally advisable for franchisors to have their FIM checked by their lawyers.