Carefully scrutinizing a franchisor’s financial performance representation (“FPR” – found in Item 19 of a franchisor’s FDD) is an essential part of a prospective franchisee’s due diligence process, and Showhomes’ 2017 FPR tells an impressive story.
“How much money can I make?” This question, and the infinite variations that are thrown at franchise development people on a daily basis, forms the root of many prospective franchise’s due diligence process. It can also, due to Federal Trade Commission regulations that appropriately protect franchise buyers from unscrupulous sales people, be one of the most difficult questions to answer.
Fortunately for brands like Showhomes, whose FPR sets them apart from other franchised brands, the FTC allows franchisors the option to make a financial performance representation if they choose. A well-crafted FPR, like that of Showhomes, can help prospective franchisees analyze this most important – and frequently asked – question.
“Fifteen years ago, very few franchisors prepared financial performance representations (or earning claims as they historically were called),” explained Matt Kelton, Chief Operating Officer at Showhomes. “Many franchisors thought it was too dangerous and left them liable if franchisees were unable to meet the established expectations. Today, prospective franchisees are doing more due diligence than ever, and franchisors are at a disadvantage if their FDD does not include an FPR. Candidates might think the franchisor is hiding something or that they don’t have a good story to tell.”
Showhomes has a great story to tell, and they use their 2017 FPR to provide franchisee candidates with an idea of what it means financially to own and operate a Showhomes franchise. For example, in Showhomes’ 2017 FPR, of the 19 Showhomes franchisees whose territories were in full-time, continuous operation during the three-year period as of December 31, 2016, these franchisees had average annual revenues during the 2016 calendar year of $366,078, with 47% of those franchisees exceeding this average. This volume is impressive for any home-based business, especially one with estimated start-up costs ranging from $50,700 on the low end to $84,860 on the upper end.
What is driving that increase? “Aggressive marketing. Diversification of revenue streams. We’re creating a luxury brand.” explained Kelton. “The average list price of homes we serve is over $800,000 and our four core revenue streams; home manager, home staging, home makeovers, and home updates; allow us to do well in any real estate market.”
The brand looks to continue this trend with a focus on unit level economics and further diversification of revenue streams. And with national expansion on the horizon, economies of scale will allow for increased brand recognition through national marketing initiatives.
With their uncommon and highly scalable business model, Showhomes allows franchisees to turn a passion for Real Estate and design into an exciting and rewarding business opportunity. With the growth and momentum displayed in its 2017 FPR, it is easy to see why there is growing demand for this unique brand.
As with any business opportunity, Kelton advises prospective franchise buyers to analyze business risk and understand return on investment. “It is important to understand the context of the numbers represented in an FPR, and one of the best ways to do that is to talk and validate with the franchise system’s existing franchisees – a step Showhomes strongly encourages its prospective franchisees to do.”
 The information above is based on the average annual revenues experienced during the time period of January 1, 2016 to December 31, 2016, by the 19 Showhomes franchisees that were in continuous full-time operation during the entire 3-year period ended December 31, 2016. Of the 9 (or 47%) franchisees that exceeded the stated average, 2 franchisees operate in 1 territory each, 4 franchisees operate in 2 territories each, 1 franchisee operates in 3 territories, and 2 franchisees operate in 4 territories each. See Item 19 of Showhomes’ 2017 FDD for further information. Some outlets have earned this amount. Your individual results may differ. There is no assurance that you will earn as much.