Earnings claim (financial performance representation)

An earnings claim may appear in a brochure, a presentation or the disclosure document itself. Neither province’s text uses the phrase “financial performance representation”. Ontario’s regulation speaks of an earnings projection, and Alberta’s of information from which a specific level or range of sales, costs, income or profit can be easily ascertained.

What each province asks for

Under Ontario’s O. Reg. 581/00, s. 6, if an earnings projection is provided, the disclosure document must include a statement of its reasonable basis, its underlying assumptions and a location where substantiating information can be inspected. Item 16 of Schedule 1 to Alberta’s Franchises Regulation requires such information to have a reasonable basis when made, to include the material assumptions, and to indicate where substantiating information is available for inspection.

What to ask

• Who prepared the figure, and what is its stated basis
• Whether it comes from actual results of existing outlets or from a model
• Where the supporting records can be inspected, and whether they were
• Whether the figure appears in the disclosure document or only in sales material

If a figure in the disclosure document proves misleading, the statutory right of action may be relevant. For a resale, read what to check in a franchisee’s financials.