Financial Performance Representations

I now have my FDD issued and am selling franchises. A prospect has asked me how much money they should expect to make. Can I tell them? The laws on Financial Performance Representations (“FPRs”), previously called “earnings claims,” can be tricky. Here are some of the general rules: A “financial performance representation: is broadly defined as any oral, written, or visual representation to a prospective franchisee, including a representation in the general media, which states (expressly or by implication) a specific level or range of actual or potential sales, income, or gross or net profits.” With respect to the FDD, if the Company makes an FPR in Item 19, the Company may repeat that claim in sales talk and in sales literature (except advertising in the states of Maryland and Minnesota). However, the Company may make no FPR other than as disclosed in Item 19, except a franchisor may supplement the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances. If the Company does not make an FPR in Item 19, it may not make an FPR in sales talk or sales literature. In addition, the Company may refer prospects to existing franchisees who may reveal their financial performance. If the Company is selling an existing operation, the Company may reveal the past earnings of that operation to a prospect interested in buying it. And the Company may give out a blank pro forma with revenue and expense categories, but give no suggestions on dollar amounts to fill in.
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