Selling Franchises and Earning Claims Issues

When selling franchises the franchise sales person needs to know that they cannot give any earnings claims to the prospect of franchisee unless those earning claims can be documented and substantiated through audited financial statements.

Further the franchise sales person needs to realize that there needs to be at least eight or more franchisees and a specific region where the prospect of franchisee is located at have made or earned that level of earnings, which the franchise sales person is claiming.

If a franchise sales person lies to a prospective franchisee then this is consider fraud. If a franchise sales person lies to a prospect of franchisee this can result in legal action by the franchisee and hurt the company.

Franchise companies should be well advised to stay away from franchise salespeople who embellish the story. As a former franchisor it became rather obvious that it was very hard to find a franchise sales person with the proper integrity to offer our franchisees to the public.

In fact we decided in our franchise offering circulars to not have substantiated earnings claims because we were afraid our competition would find out all of our data. This meant that the franchise sales person could not tell the franchise customer or buyer how much money they would make.
Tip! This is a number that is required for claims filed for medical doctors. Without it, your claim can be denied or delayed.

Actually this is too bad for the franchise buyer, but that government has determined that this is the proper way to enforce this issue to prevent fraud. The temptation to give earnings claims to franchise buyers prior to the sale is intense because the franchise buyers keep asking over and over again prodding for the information.

Indeed in my opinion they deserve the information that the government regulations make it nearly impossible to give the information that the buyer needs to make a proper decision.

This is because we have asinine bureaucrats and regulators, which in my opinion are completely brain-dead and do not understand free enterprise or the marketplace. But what can you expect from a socialist party participant in a government agency, who has never had to make a paycheck for themselves? It is the government's fault for this impossible situation. Consider this in 2006.

Lance Winslow

Biz Ops and Business Opportunities Must Substantiate Earnings Claims

The Federal Trade Commission is considering a new proposed rule, which would require Biz Op's and business opportunities to substantiate earnings claims that they may to potential buyers if the buyer requests them. Such earnings claims proof will hopefully eliminate much of the fraud that goes on in the business opportunity sector.

Below is a copy of the Federal Trade Commission's proposed rule on substantiate earnings claims to potential buyers to ask for them;

Proposed section 437.5(f): Written substantiation for earnings claims

"Proposed section 437.5(f) would prohibit a seller who makes an earnings claim from failing to provide written substantiation to prospective purchasers and to the Commission upon request. Rather than mandating that business opportunity sellers include documentation for earnings claims - which could be voluminous - in the earnings claim statement itself, section 437.5(f) would reduce compliance costs by requiring only that such materials be provided to potential purchasers and to the Commission upon request. Purchasers could then review the documentation if they so choose."

Most business opportunity practitioners are indeed honest, however many simply make up huge numbers that the buyer may potentially make if they buy the business opportunity. For instance; "Make $10,000 per month stuffing envelopes part-time in your own home, while working in your underwear and watching TV." You may think this sounds funny and indeed it is, however now the business opportunity practitioners would have to come up with names and proof that people were actually making that kind of money after they had bought their business opportunity. Consider this in 2006.

Lance Winslow