BUSINESS SUCCESS

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Time Period: Look at the time-period represented in the financial representations. Is it multiple years where fluctuations will smooth out? Is it only one year? Would you anticipate a fluctuation in this business based on something in the market? Would this business have a seasonal pattern? 03

Location-Specific Data: If the franchisor provides location-specific data, then you will be able to find markets/cities like yours and analyze that data relative to the total. This may help with other questions to ask during validation as well as of your franchise contact. Also note if the Item 19 covers all locations or a subset of the locations. Is this a subset of those locations that are certain ages, company owned vs. franchised? 04

Profitability and Expense: Delve beneath top line revenue and look into the cost buckets associated with driving profit. Likely, you will want to understand labor, rent, royalties, advertising, and cost of goods sold. 05

Earnings Potential: Remember that for every average stated, there is someone performing above that number and someone performing below. An Item 19 is not a guarantee that if you invest, you will earn the amount reported. A franchisee’s success depends on many factors, including their skills, management, and dedication.

Potential buyers should not rely only on Item 19 when deciding about purchasing a franchise. It is one component of many that provides insight into what may happen. Additional research including the validation process offers additional insight into interpreting Item 19 as well as other factors important to the decision.

Item 19 of the FDD plays an important role in evaluating franchise opportunities. It offers potential buyers a glance at financial performance of the concept. Paired with additional analysis and due diligence, it gives a fuller picture of the opportunity. However, it is important to approach this information critically, considering various factors, and not solely rely on it to assess the viability of a franchise. Item 19 is not a promise of what will come if you sign on the line. w

With over 25 years of franchise experience, Tiffany Dodson, CFE, holds deep roots from senior marketing roles at well-known international franchises to recognition as a top performing franchisee, Master Developer, author, and speaker. Find Tiffany at The Salt Suite, and reach her at Tiffany@TheSaltSuite.com.