How to Learn About a Franchise's Financial Performance

The information you will be able to discover regarding the financial performance of a specific franchise depends, in part, on whether you are a potential purchaser or simply a curious member of

If you are a potential purchaser, you will be able to find out about a franchise's financial performance through the Federal Trade Commission's (FTC) Franchise and Business Opportunity Rule. Under this rule, franchisors must make a series of detailed disclosures to potential purchasers, either in the form provided by the rule or in the form of a Franchise Disclosure Document (FDD).

The FDD is made up of three basic parts:

The first part contains 23 sections describing the aspects of the franchise program.

The second is a set of the franchisor's audited financial statements.

The third is a copy of every form or contract you will sign should you decide to purchase the contract.

Under the rule, companies are required to include in their disclosures a list of the names, addresses, and telephone numbers of at least 10 recent purchasers who are geographically closest to a potential franchisee, so that the person can obtain legitimate references. Armed with this information, you will be able to contact recent purchasers and ask them questions about the financial performance of the franchise you are considering.

The FTC does not require that disclosure statements be filed. Franchisors provide information to potential purchasers but are not required to file that information with the FTC. Thus, it is possible that only a potential purchaser would be able to obtain detailed information about a specific franchise.

If you are unable to obtain information from the FTC because you are not a potential purchaser of a franchise, it may still be possible to find the information if the franchisor has filed a UFOC. There are 15 states that require franchisors to provide presale disclosures. Most of these states will not provide copies of these disclosures, but may permit a review of the documents in person by appointment.