As founders transition into franchisors, few areas carry more risk than earnings claims and advertising. It’s also one of the fastest ways to derail a franchise system before it even gets off the ground. The challenge is clear: prospective franchisees want to  understand the financial potential of the business , but franchisors must operate within strict legal boundaries about what they can and cannot say. Understand What You Can Legally Say In franchising, financial representations are regulated under the  FTC Franchise Rule . For example, the only place a franchisor can formally present financial performance data is within Item 19 of the  Franchise Disclosure Document (FDD) . That rule shapes everything. “One of the most important sections of the FDD is Item 19. This is where a franchisor may choose to disclose financial information about existing franchisees,” said  Katy Richardson , founder of  NEIGHBORHOOD barre . “Anyone involved in the franchise sales process can only discuss financial performance to the extent it is disclosed within that section of the FDD. For that reason, franchisors must be extremely careful not to make financial representations outside of what is formally disclosed in Item 19.” The Role of Validation While franchisors are limited in what they can say, prospective franchisees are not limited in what they can learn.  Every FDD includes a list of current and former franchisees , and candidates are encouraged to reach out directly to get real-world insight. “Franchisee validation is often one of the most valuable parts of the due diligence process,” Richardson said. “It gives candidates the opportunity to hear firsthand experiences from operators within the system.” Rather than trying to “sell” performance through marketing, strong systems allow their existing franchisees and documented data to tell the story. The Biggest Legal Mistake: Not Hiring the Right Counsel If there is one mistake that consistently creates risk for emerging franchisors, it’s failing to work with  experienced franchise counsel . “Strong franchise counsel is not just drafting documents,” Richardson said. “They are helping franchisors build a compliant, transparent and scalable foundation for long-term growth.” Franchise law is highly specialized, and while the rules may appear straightforward, the application is certainly not. “Inexperienced counsel often misses the nuances and operational realities unique to franchising,” Richardson said. “One common area of confusion is the Advertising Fund, specifically, which expenses can appropriately be allocated to that fund versus corporate overhead or brand operations.” Common Pitfalls in Earnings Claims Beyond general compliance, several specific mistakes recur across franchise systems. The first is incomplete or misleading cost disclosures. “Failing to fully disclose the actual costs franchisees incur to open a business” is one of the most common issues Richardson sees. Underestimating startup costs may make an opportunity appear more attractive upfront, but it creates long-term problems when franchisees encounter unexpected expenses. The second is improperly structuring Item 19 data. “There are many ways to structure an Item 19,” Richardson said. “The strategy behind our disclosures varies by brand.” At NEIGHBORHOOD barre, for example, the focus is not just on revenue, but on profitability.  “We believe it’s important to highlight the metric that matters most to prospective franchisees: profitability,” Richardson said. “Higher AUVs do not necessarily translate to stronger margins or healthier businesses. With NEIGHBORHOOD barre, we intentionally disclose key studio operating expenses to provide a clearer picture of unit economics and overall profitability.” The third mistake is failing to account for ongoing fees and flexibility. “Failing to account for all ongoing fees, or the franchisor’s right to modify those fees within Item 6” can create confusion and potential disputes down the line, Richardson says. Advertising Pitfalls: Where Brands Get Tripped Up Earnings claims are not limited to formal documents. They can also appear, intentionally or unintentionally,  in marketing materials , such as website copy, sales brochures, discovery day presentations, social media posts and conversations with candidates. It’s easy to forget that almost any remark about a franchisee’s potential income counts as a legal earnings claim, including casual comments like “our top locations bring in X.” That is why navigating the space where marketing meets legal rules is always a bit of a tightrope walk. The most successful franchisors don’t leave things to chance. They stick to the data, keep every message in sync with their FDD, and lean heavily on expert counsel. Ultimately, they let their numbers and their actual franchisees do the talking. In short, they focus less on selling and more on proving. Want to learn more about how 1851 helps franchisors grow their franchises with confidence? Visit  www.1851growthclub.com and see what we can do for you.