How Much Can I Make?

It's what everybody wants to know before buying a franchise-and although there's no guaranteed answer, you can learn a lot by asking the right questions. Here's how.

- By Mark Siebert

So you've decided to buy a franchise. You've done your research, and have narrowed it down to a short list of companies that excite you personally, are profitable, and have management teams you are willing to bank on. Still, you haven't answered the most important question: What can I earn? Obviously, the main reason most people buy franchises is to earn money, but no good franchisor would ever answer that question directly. They would have far too much liability if they did. A franchisor should instead provide you with some guidance to help you make that estimate for yourself. The key to making that calculation starts with something called the "financial performance representation," or FPR.

Where would you find the FPR? In many Franchise Disclosure Documents (FDDs), which a franchise will provide when you're considering becoming a franchisee, you will find the FPR in Item 19. Almost always, the FPR focuses on historical results that have been achieved by the franchisor, its affiliates, its franchisees, or some combination of the three. The FPR may come in the form of an income statement, but more often, it will focus on some of the key variables that will dictate income (and will enable you to develop a pro forma income statement based on those variables). The format and utility of these FPRS vary from franchisor to franchisor.