No business work is completed without documentation, both the franchisor and the franchise needs to compile certain papers for a legal purpose. One of the most important legal document is known as the Franchise Disclosure Document. This document is maintained by the franchisor to facilitate individuals interested in acquiring their franchise.
In the franchise disclosure document, there are different items and each is referred to an important business aspect. One of the most popular section in this document is the item 19. If you are considering to purchase a franchise you need to have a thorough a look at the FDD to know about the business. Most importantly you should check the item 19 for a clear understanding of financial standings.
What is item 19 all about?
It is that portion of Franchise Disclosure Document that shows the ‘Financial Performance Representations’. After reading this section your question about the financial condition and the amount of money you make form this business will be answered.
So let’s understand what the item 19 will hold. It includes detail information about the financial performance of the current franchisees. What is the income generation pattern of all the franchises? Apart from the current performance it also exhibits the potential income in the future.
Only the information that falls under the definition of financial performance is mention under this item, and no other information is included. If you are interested in a particular franchise you have to go through this section to understand the earning pattern, no other information will be provided apart from the mentioned.
Understand that the details in item 19 may differ depending upon eth industry as well as it is dependent upon the franchisor, as to which information he feels to disclose. Food franchises UK will defiantly have a different set of information in this section as compared to the appeal franchise.
Few retailers might shoe gross sales and the total revenue, others might include the cost incurred on everyday bases or the average amount of units sold.
Infer the details mentioned
For instance, you are interested to invest in home-based franchises or part-time franchises. You need to look at the specifications disclosed about the finical performance. The more detailed the document is the business seems more transparent. This also shows that every franchisee is being loyal in sharing the right information.
Once you have detailed information about the financial condition, you will be in a better position to take the right decision. No doubt that every business comes with risk, a slight change in the economic factor can drastically affect the smooth functioning, thus resulting in disturbed financial earnings. You can only take a good idea of how your franchise would be working the cash flow if everything remains in favour.
There is a possibility that the franchisor includes some fake numbers in the document or any misleading information. To be sure that the information is true you can have an interview scheduled with any current franchisee to know the real grounds of the business.
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