Before you dive headfirst into conversations with potential franchisees, it’s crucial to understand the rules about HOW and WHEN you can disclose your franchise offering, along with what your teams can and can’t say to prospects before they join the system.
aDVERTISING FOR PROSPECTIVE FRANCHISEES
Franchisors are generally restricted from advertising in franchise registration states unless they have registered to sell franchises in that state. Many of these states also require franchise advertisements to be filed before they are used, and some have substantive requirements that must be included on the advertisement itself. For example, Minnesota requires a franchisor’s franchise registration number to be included on advertising copy. New York has a specific legend that must be placed on all advertisements.
The content of franchise prospect advertising should be carefully reviewed, both to comply with state requirements, and also to ensure none of the content is misleading or runs afoul of other regulations. No advertisements for franchise prospects should make reference to the acquiring of a franchise as a safe investment or as free from loss, default, failure, or that a default or failure is impossible or unlikely.
Tip: We always recommend to avoid using the word ‘success’ in any franchise advertisements as it tends to be a trigger for regulatory review!
Best Practice: We always recommend that clients provide us with drafts of their proposed franchisee advertising materials to ensure requirements are met.
FINANCIAL PERFORMANCE REPRESENTATIONS
One of the most scrutinized areas of franchise laws surrounding financial performance representations. Franchisors have an option to make a disclosure surrounding financial results of one or more franchised units within their system. Making this disclosure is optional. If your Franchise Disclosure Document (FDD) includes an Item 19 (Financial Performance Representation), you can speak about the numbers you’ve disclosed — but only within the parameters laid out in that section. If your FDD doesn’t include an Item 19, you can’t discuss sales, profits, or projections at all.
What is a financial performance representation? An FPR is any statement, in any medium, that gives actual or projected financial results — including:
- Revenue
- Costs
- Profit margins
- Gross or net income
- Unit-level economics
- Break-even points
And it doesn’t have to be in writing. Even a verbal comment like “our average location does $700k in sales” is considered an FPR — and it’s illegal to say unless it’s disclosed properly in Item 19.
YOU CAN’T make any FPRs outside of Item 19 – not in your sales calls, not in your brochures, not at discovery day.
YOU CAN’T “wing it” with anecdotal success stories unless they match what’s in your FDD.
YOU CAN’T use FPRs selectively – what’s disclosed in Item 19 must be made available to all prospects.
Tip: FPRs can come from any of your team members – ongoing training is key!
Best Practice: We work with our clients to carefully craft any Item 19 disclosure in their FDD, and provide talking points around what is included. If a client does not have an Item 19 disclosure, we provide talking points accordingly.
CONSISTENCY
Once your FDD is complete, you’re officially open for franchise conversations — but with that comes responsibility. Treat your FDD as a compliance guide and a sales tool. It’s there to protect both you and your future franchisees. Every representation made during the sales process — whether it’s in an email, on a discovery call, or through your website — should not conflict with what is actually in your FDD.
Consistency with your FDD isn’t just about avoiding legal risk (though that’s a big part of it). It’s also about building trust. Franchisees are making a significant investment based on what you say, what you show, and what you put in writing. If there’s a disconnect between your pitch and your paperwork, it can erode confidence before the ink is even dry.
A few tips to stay on track:
- Make sure your sales team is trained on what the FDD says and what they can’t say.
- Avoid offering “side deals” or verbal promises that contradict the FDD.
- If your business evolves, update your FDD accordingly before changing how you sell the franchise.
bOTTOM LINE
The FDD isn’t something you set and forget. It should be the foundation of every franchise conversation you have. The more aligned your actions are with your disclosures, the smoother your growth — and the stronger your franchise system — will be.
