the quality of the prospect, and second, the prospect has a
clear understanding of how to get and keep customers—and
the franchise operators can best speak to that.”
Not divulging information in Item 19 also helps to keep candidates’ expectations more realistic—or at least in the ballpark. The problem with providing a range of earnings is that
entrepreneurs are optimistic by nature and tend to identify
with the stars in the system.
“Any group will have its group of overachievers who astound
even the franchisor, and those who fail,” says Spindel. “I’ve
seen a wide spread between the best and worst performers
in our system.” Most FPRs have a fairly large delta between
lowest and highest, he adds.
“No one thinks they’re average, or for sure below average.
So prospects tend to gravitate toward the top producers, the
top quartile. If they came into our system doing that, three
quarters would be unhappy.”
So in coming down on the side of not making FPRs, “I’m
afraid prospects will look at the top 10 percent or quartile
and lick their chops. I wouldn’t encourage or expect that,”
he says. “Why, if FPRs are optional, create a situation where
we’d have to manage expectations?” Instead, he says, candidates can speak with 10 or 15 franchisees and hear the
“One way of looking at FPRs is franchisees put too much importance on it,” says Duvall. “It’s fairly important what’s happened in the past, but in terms of extrapolating for the future,
you have to do your own research.”
He says unit-level economics are what’s key, and franchisors don’t always have a complete picture of that. And when
it comes to earnings, he says, “A lot has to do with the marketing effort put forward by the franchisee, the demographics of the territory, and probably most is just how capable
the franchisee is.”
Duvall says he’s in the camp of suggesting that his franchisor clients consider making FPRs, but with a caveat. “I think
franchisors should supply all the reliable data they have in
Item 19—but only the reliable data. Very few franchisors can
do this,” he says.
“People shy away from an earnings claim because that’s
what they’ve always done,” says Adams. “I think if a company
is smart they would at least each year look at the opportunity
it represents to address a specific set of questions or concerns
people might have or provide a resource of information to
help a prospect make a decision. As for the big question, “How
much can I make?” Adams tells them, “I don’t know.”
Says Isakson, “That I don’t know our key competitors in
our markets do or do not have earnings claims will give you
an indication I don’t worry about that.” n
continued from page 16
franchisees stand to gain. “Anyone employing people can benefit from these
credits, whether for the corporate headquarters, company-owned locations, or
franchisees nationwide.” Franchisors,
he adds, can become heroes by passing this knowledge and opportunity
to their franchisees.
The only caveat is that the jobs must fall
within the requirements of the IRS rules
governing the various federal programs.
These include the Empowerment Zone
Wage Credit Program (up to $3,000 in
annual tax credits per qualified employee);
the Renewal Community Wage Credit
Program (up to $1,500); and the Work
Opportunity Tax Credit (up to $9,000);
plus several state programs. These retroactive tax credit programs cover the open
tax year and the three prior years.
“At first it seems like a fairy tale,
too good to be true,” says Friedman.
“We tell them to google IRS Publica-
tion 954. They see it’s real and start
digging a little deeper.” He says that
while large vendors such as ADP provide these services for large corporations, there is no competition in the
small business space. He’s positioning
Retro Tax as ideal for executives and
business owners seeking a white-collar,
B2B, Monday-Friday concept.
Says Greenberg, “If you’re a franchisee, multi-unit franchisee, or franchisor,
you might be missing opportunities to
help your people be and stay profitable.
Once you know that gold is there, how
can someone afford not to put this
in place?” n
continued from page 17
the Internet, in print, or in direct mail
visuals, is very important in attracting a
prospective franchisee’s attention.
The second most important factor
in generating traffic to the booth is the
brand representative at the booth. Nearly
one-third of the attendees were attracted
to a booth they had not considered visiting because the brand representative
caught their attention. Extrapolating
a bit, franchisor representatives have
a strongly influential role in the discovery process.
As I noted at the beginning, this particular survey work has restated some of
the obvious things we have known all
along. In addition to validating that prospective franchisees are more prepared
today with prior homework, this survey’s
value lies in the confirmation and reinforcement that as more information is
readily available to prospective franchisees, they are coming in more informed
and with better questions and expectations than their predecessors. n
Darrell Johnson is President and CEO
of FRANdata, an independent research
company supplying information and analysis for the franchising sector since 1989.
He can be reached at 703-740-4700 or