The North American Securities Administration Association (“NASAA”) consults with the Federal Trade Commission (“FTC”) in order to provide commentary and guidance to franchise owners and practitioners. The NASAA recently provided commentary regarding Item 19 Financial Performance Representations (“FPR’s”) that are included in a franchisor’s Franchise Disclosure Document (“FDD”).
Overall, the theme of the NASAA Commentary shifts toward greater transparency in Item 19 FPR’s. For example, for the franchisor that includes gross sales or net profits in an FPR, the franchisor must also detail how those gross sales or net profits were calculated. Additionally, if the franchisor uses an average number in its FPR, then it must also list the highest, median, and lowest number, as well.
One important note for franchisors is that when an FPR includes projections, the franchisor must base those projections solely on historical data. Franchisors are not allowed to provide FPR’s based upon hypothetical situations or expectations of a future financial performance—the basis for the FPR must be rooted in historical data.
Should you have any questions regarding the NASAA Commentary on Item 19 FPR’s, or other matters involving franchise law, please contact our firm at (813) 223-1099, Mr. Dennis Leone at firstname.lastname@example.org, or Mr. Jonathan Stitt at email@example.com.