What is the significance of the 'reasonable basis' requirement for Cream's financial performance representations?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
igure to promote the franchise system.
ITEM 19 FINANCIAL PERFORMANCE REPRESENTATIONS
The FTC's Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about performance at a particular location or under particular circumstances.
As of December 31, 2024, there were a total of 87 corporate-owned Jeni's Ice Creams Scoop Shops operating in the United States. Of the 87 corporate-owned Jeni's Ice Creams Scoop Shops, 2 opened during 2024 and were not operating for the entirety of 2024, and 2 operated on a limited seasonal basis and therefore were not operating for the entirety of 2024.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 51–57)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, the FTC's Franchise Rule mandates that any financial performance representations made by Cream regarding its franchised or company-owned outlets must have a 'reasonable basis.' This requirement ensures that the financial information provided to potential franchisees is grounded in factual data and supportable assumptions, rather than being speculative or misleading. The 'reasonable basis' standard aims to protect prospective franchisees by ensuring they receive reliable information upon which to base their investment decisions.
For a prospective Cream franchisee, this means that the financial performance data presented in Item 19 of the FDD, such as net sales, cost of goods sold (COGS), gross profit, and net profit, must be based on actual performance of existing Cream shops or on well-supported projections. Cream is obligated to have documentation and evidence to back up these claims, which they must provide to a potential franchisee upon reasonable request. This substantiation allows the franchisee to assess the credibility and reliability of the financial performance representations.
However, Cream does not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets, besides what is included in Item 19. If a potential franchisee receives financial performance information outside of Item 19 or projections of future income from Cream's employees or representatives, they are advised to report it to Cream's management, the Federal Trade Commission, and the appropriate state regulatory agencies. This is to ensure that all financial claims are properly vetted and compliant with franchise regulations.
The FDD emphasizes that individual results may vary, and there is no assurance that a new franchisee will achieve the same financial performance as the existing shops. This disclaimer highlights the inherent risks in any business venture and underscores the importance of conducting thorough due diligence, including reviewing the substantiation for the financial performance representations and considering local market conditions, management capabilities, and other factors that can impact financial outcomes.