How to Create an Earnings Claims Statement for a Franchise

An earnings claims statement is a document given to prospective franchisees that outlines the financial history and future predictions of the franchise's profits, sales and expenses. This information can be included in the UFOC and disseminated to all interested parties, or it can be made available to strong franchise prospects only.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Calculator
• Franchising attorney
• Financial documents

1. Compile and analyze all of your financial documents so that you can represent your business in the best way possible.
2. Go over all financial documents with your accountant to ensure that the information you included in the earnings statement is accurate.
3. Base the earnings claims statement on historical data, as it's impossible to accurately predict the future profitability of your franchise. Never make predictions about the future success of the franchise. Making statements with no factual basis is illegal and will set you up for potential fraud litigation.
4. Include all necessary disclaimers so that readers understand that their results could be different from those represented in the earnings claims statement. In addition to offering a fair picture of your franchise, you want to create a document that protects you from litigation by eliminating all loopholes.
5. Show the draft of the earnings claims statement to your franchising attorney to make sure it is legal and includes all of the proper disclaimers. You don't want the earnings claims statement you create to become a future liability for your franchise.

Tips & Warnings

• Deciding whether or not to disclose your earnings claims statement in the UFOC is entirely your decision. If you do decide to include it, it should be located under Item 19.
• You can create a earnings claims statement in 2 to 4 weeks.
• It is not uncommon for disgruntled franchisees to bring legal action against franchisors if they aren't making the anticipated profits. When you create an earnings claims statement for the franchise, it is imperative that you are honest and don't misrepresent the income potential for your business. Doing so can put you at risk for income misrepresentation fraud.
• Hiring a franchise lawyer is extremely important when creating an earnings claims statement or other disclosure document. One wrong step, and you could end up getting sued by a franchisee for income misrepresentation.