What should a franchisee’s earnings potential be based on?

Generally, prospective franchisees want to know two things about the earnings potential of a proposed franchise business.  The first is how much money they are going to make and most franchisors respond to that on the basis that they cannot tell because it depends on how hard a franchisee works, how good they are, etc., but equally most franchisors are prepared to provide average profit figures for their franchisees.

If average profit figures are offered to you then the second thing you will want to know is whether the territory that has been allocated to you, if it is a territory based franchise, or the location of your franchise premises, are any worse than average territory/locations and so a prospective franchisee will need to understand how each franchise territory/location is established to ensure that there has been fairness in any allocation.

Franchisors are understandably weary of providing financial information because they can amount to a representation which, if untrue, would enable a franchisee to bring a misrepresentation claim – most claims against franchisors involve not only an allegation of breach of contract, but also a claim for misrepresentation.  Having said that, providing that franchisors base any information they provide on average franchisee performance or on an alternative method, if that is clearly set out then it is most unlikely that a misrepresentation claim will arise.