What Are the Rules Regarding Franchise Earning Disclosures?

If you're considering buying a franchise, one of the most important early steps you must take is determining what its actual quarterly and/or annual earnings are. This is crucial information to have

In reaction to some rather questionable business practices during the sixties and seventies, in which prospective franchisees were provided with misleading documents regarding franchise earnings, Congress introduced legislation requiring the Federal Trade Commission (FTC) to regulate the franchise industry and create new rules regarding what a franchise must disclose to prospective franchisees.

Today the FTC does not restrict a franchise from supplying information about their current and projected earnings — all a franchise must do if they want this information made available to a potential franchisee is to put it in writing in Item 19 of their UFOC (Uniform Franchise Offering Circular) disclosure document. The financial information in Item 19 must be as clear and accurate as possible. After a franchise has done this, it is free to reveal whatever it would like about sales, income, and cash flow.