Be skeptical about earnings claims that are presented. A franchisor will only make an earnings claim to portray the business in a positive light; for example, s/he may creatively use a small portion of franchised units in making the earnings claim. Determine how the franchisor arrived at the numbers s/he gave you. For the franchises whose numbers were used, where is each business located? What is the competition there? How long has that branch been in business? Also, understand that it takes a while for a new business to turn a profit, so even if you are given an earnings claim, you may not realize that kind of profit for at least a few years.

If an earnings claim is made, a description of the factual basis behind those numbers must be included as well. If an earnings claim is not made, there are still ways of estimating how much money any given unit of the franchise might make.

Ask other franchisees in the system how much they net and gross monthly. They are not required to disclose this type of information, but often they will at least give you an idea of the amount of money their businesses draw in. If the franchise is a public company, it is required to provide the Securities and Exchange Commission with financial reports. You can get a copy of these reports from a stock broker or on the SEC website at www.sec.gov in the EDGAR database.

Source: New York State Office Of Attorney General