Understanding Earnings Claims
If you are seriously considering joining the franchising industry, you must know by now that how important the role of UFOC is in choosing the right franchisor. The section 19 of your UFOC is quite significant. It will make you aware of the earning claims the company is making. If you go through the UFOCs of more than one company, you will see that not everyone is offering you an earning claim. Some may say it’s a violation of federal law. But that’s a very wrong interpretation of the federal laws regarding the franchising industry. The laws were implemented in order to save the hard-earned money of the franchisees from dishonest franchisors.
To prevent a company from offering outlandish claims, the law stipulates that if a company gives earning claims, it has to back it with record of those claims. The company is supposed to give financial records showing that such earnings were made by an actual location and the cost of running such an establishment. If the company decides to provide these claims, it will be filed under section 19. It is very important, because it is written legal claims of the company on how much you can make by being its franchisee. Each state verifies the UFOC and other documents submitted before granting the franchisor the rights to franchise in that state. Hence, be sure that the item 19 of the UFOC is a verified and government-approved piece of information. Along with it, the company may give its financial statement in section 21 or as an addendum.
So, when you read the UFOC, be careful while reading this statement. Along with item 20, this must be a big factor in your decision to join the company. Section 20 will give you a list of all the present franchisees of the company and even those who have left the network. Call them and talk to them regarding all the claims of the company, whether earning claims or support and training claims. Ask the previous franchisees why they had left the chain and weigh both the view points. One thing that you should never do is asking the salesperson or the franchisor about “how much you can make”. It is not their job to answer that, and if they do give a number, that is unsubstantial in the eyes of the law. Therefore, beware of the companies who “accidentally” tell you how much you can earn. And the next time you hear the words “we cannot give an earning claims, it is against the law”, be sure that the company is trying to pull the wool over your eyes. Its not that they cannot give, but they don’t want to give, because they are required to produce necessary documents to substantiate it!
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