1851

When it comes to reading a Franchise Disclosure Document (FDD), perhaps the most important item to pay attention to is Item 19. Within the Item 19 is the potential earning claims, or Financial Performance Representation (FPR). &nbsp;

The format of an FPR and the types of earnings claims presented in the forms differ greatly from franchise to franchise.&nbsp; However, the information contained within the FPR contains specific levels of sales and profits at their locations.&nbsp; While it is not required to have an FPR, for those that do have it the law is clear on the accuracy required.

&ldquo;I find them very reliable. From the perspective of the franchisor, the law requires them to be accurate and not misleading,&rdquo; explained Adam Siegelheim, franchise attorney at <a href="http://www.stark-stark.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">Stark and Stark</a>.

While most franchisors elect to include an FPR in their Item 19, the section is not actually required by law.

&ldquo;It is not required to have an FPR, however, not having one may be seen as a red flag to prospective franchisees,&rdquo; said Brian Schnell, Chair of <a href="https://www.faegrebd.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">Faegre Baker Daniels</a> franchise practice. &ldquo;Those brands without an FPR are at a disadvantage because if others do have them, franchisees might go there instead. If you have a decent story to tell, then those numbers will help showcase the potential behind your franchise opportunity. It&rsquo;s difficult to build a strong relationship with a candidate throughout the sales process when you have to explain why you don&rsquo;t include earnings claims.&rdquo;

Aside from instilling trust in potential franchisees, an FPR can serve as protection for both parties entering into a franchise agreement.

&ldquo;In general, one of the advantages for both parties is that it lays out in writing certain data, which minimizes lawsuits in a way because it isn&rsquo;t hearsay. It serves as an incidental protective function,&rdquo; said Siegelheim.

In the event that a franchisor does not have an FPR, their sales process must be even more buttoned up.

&ldquo;Under franchise laws, if the franchisor does not include an FPR it may not provide FPR information in another medium. They can&rsquo;t say anything that relates to an actual performance representation,&rdquo; explained Richard Morey, partner at <a href="https://www.dlapiper.com/en/us/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">DLA Piper</a>.&nbsp;

To gauge risks going forward, franchisors will require potential franchisees to fill out a questionnaire detailing the process.&nbsp; Generally, one of the questions will detail performance representations.

&ldquo;A questionnaire will help you eliminate a problem early in the process if the franchisee was provided with that illegal information,&rdquo; said Morey. &ldquo;It can get to be a very difficult situation to work through. But at least you know before the franchise agreement is signed.&rdquo;

If there is a violation involving an FPR, there are several ways that a franchisor will attempt to remedy the situation.

&ldquo;Remedies can include rescission, which is basically giving the franchisee their money back and putting them back to where they were before they made the investment decision. The remedies are severe and real,&quot; Schnell said.

However, with the rise in technology in recent years, franchisees are able to do extensive research into brands and the information found in FDDs. Technology also allows them to connect with experts much easier.

&quot;Do your due diligence, because in this day and age there is information available all around you. It&#39;s right at the tip of our fingers,&quot; explained Schnell. &quot;Also make sure you are talking to the franchisor and the existing franchisees to understand what it will take to get your business off the ground, and what it will take to be sustainable. By doing your homework and working with the right advisors, you&rsquo;ll be in a good position to succeed.&rdquo;

Understanding Financial Performance Representations and Their Legal Ramifications

1851 Franchise

While not required in Item 19 of the FDD, financial performance representation carries a lot of weight when it comes to potential franchisee trust and the law.

understanding-financial-performance-representations-and-their-legal-ramifications

SweatHouz

SweatHouz SWTHZ Franchise - Hunter and Mallory Mitchem - Franchisee Feature - 1851 Franchise

From Aerospace to Wellness: Hunter Mitchem’s Journey to a SweatHouz Empire

sweathouz-franchise-hunter-mitchem-6g

Onigilly Japanese Kitchen

Onigilly - Low Operating Costs Drive High Returns for Franchisees - 1851 Franchise

Maximize Your ROI: How Onigilly’s Low Operating Costs Drive High Returns for Franchisees

onigilly-franchise-fast-casual-franchise-opportunity

Layne's Chicken Fingers

What Is the Layne’s Franchise Disclosure Document, and What Will I Find in It?

laynes-franchise-disclosure-document

Athletech News: How SWTHZ Delivers on Wellness Demands of All Kinds

swthz-delivers-wellness-demands-contrast-therapy

TruBlue Home Service Ally

Why Protected Territories Matter and How the TruBlue Franchise Delivers

why-protected-territories-matter-and-how-the-trublue-franchise-delivers

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

Bed Bath & Beyond - Franchise Expansion - Retail Strategy - 1851 Franchise

Bed Bath & Beyond Launches Franchise Model as Part of Comeback Strategy

bed-bath-beyond-franchise-expansion-retail-strategy

Senior Entrepreneurship - Franchising - 1851 Franchise

Senior Entrepreneurship Is Rising — And Franchising Is a Key Outlet

senior-entrepreneurship-franchising-silver-startups

U.S. Government Shutdown - Impact on Franchises - 1851 Franchise

Government Shutdown Stalls SBA Loans: How the Shutdown Could Impact Franchises

government-shutdown-impacts-sba-loans-tourism-franchises

Subway Franchisees Resist Expensive Remodel Directives

subway-franchisees-resist-expensive-remodel-directives

The American Franchise Act: What It Means for Franchisors and Franchisees - 1851 Franchise

The American Franchise Act: What It Means for Franchisors and Franchisees

american-franchise-act-joint-employer-standard

image of franchise deep dive from 1851 franchise on doody calls franchise authority brands

DoodyCalls Franchise Costs, Fees, Profit and Data for 2025

doodycalls-franchise-deep-dive

image of mellow mushroom deep dive into financials article from 1851 franchise

Mellow Mushroom Franchise Costs, Fees, Profit and Data for 2025

mellow-mushroom-franchise-deep-dive

How goGLOW Turned Clean Beauty Into a Scalable Franchise and Why It’s Accelerating Now

goglow-clean-beauty-tanning-franchise

How Capriotti’s Sandwich Shop Has Expanded Into One of the Restaurant Industry’s Most Exciting Franchise Opportunities

meet-the-franchisor-capriottis-david-bloom

Top Education Franchises To Consider for 2025 - 1851 Franchise

Top Education Franchises To Consider Investing In for 2025

top-education-franchises-investment-opportunities

Power Eats: Smoothie King Rolls Out Food Nationwide To Fuel Franchise Growth

smoothie-king-food-menu-power-eats

Top Early Childhood Education and Child Care Franchises for 2025 - 1851 Franchise

Top Early Childhood Education and Child Care Franchises for 2025

early-childhood-education-child-care-franchises

Top Arts and Creative Learning Franchises for 2025 - 1851 Franchise

Top Arts and Creative Learning Franchises for 2025

top-arts-creative-learning-franchises

1851 Franchisee Spotlight graphic with photo of Barb Volk and KidStrong logo

Why This Orangetheory Fitness Franchise Owner Is Developing KidStrong Franchises

kidstrong-franchise-owner-barb-volk-2025

Understanding Financial Performance Representations and Their Legal Ramifications

MORE STORIES LIKE THIS