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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.

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.