Item 19 of the Uniform Franchise Operating Circular is where franchisors can disclose financial performance on a franchise to prospective franchise buyers. At best, Item 19 is a mystery. At worst, it’s a headache for many franchisors as well as those looking to get into the franchise business.
It is a headache for franchisors because of the potential risk of a franchisee holding them to unrealistic earnings expectations. As a result, prospective franchisees are often left in the dark regarding how much a franchise unit might earn. This can cause some to walk away from an opportunity.
Using financial benchmarking software can solve both of these problems, alleviating pain for franchisor and franchisee alike. Before we get into this, let’s discuss why only about one in four franchisors disclose financial information in Item 19.
1. They are not legally obligated to do so.
2. They fear disclosing inaccurate or misleading information (e.g. inflating potential earnings) which could provide the basis of a lawsuit to get out of the franchise and recover losses.
3. Each franchise unit might perform differently based on its location and other factors making a uniform disclosure irrelevant or inaccurate.
4. Franchisors often have difficulty tracking data from their franchisees and struggle to get accurate information that would provide a solid Item 19 disclosure.
An inaccurate or incomplete disclosure in Item 19 can cause major drawbacks for potential franchisees and franchisors alike. The prospective franchisee may see the lack of disclosure as a red flag and choose not to pursue the investment while the franchisor may end up facing claims of misrepresenting the earning potential of a unit or franchise system.
Qvinci provides a solution to the Item 19 quagmire
Qvinci consolidates data from franchise locations on a daily basis so insights into financial performance are never left to guesswork or a franchisee’s self-reporting. This means the franchisor can have consolidated, accurate and filtered financial information available at the click of a mouse when drafting their disclosure documents. If needed, they can craft that disclosure around the specifics of the unit’s location, market and projected performance.
Qvinci’s solution allows franchisors up-to-date visibility into each location’s performance and gives them the ability to filter out units that differ from the one in question by location, square footage, opening hours, staffing levels, etc. It also benefits the prospective franchisee who gets a much more accurate disclosure to consider as they make their decision.
With Qvinci software, both parties are protected and empowered to make secure decisions thus contributing to a healthier franchise system.