How To - Check the Financials in a Franchise

You need to clearly have the financials assessed by your accountant so that the figures that have been put before you by the franchisor, have been thoroughly reviewed and are achievable.

At the end of the day, you are buying a franchise business because you want to make profit. You are looking at building up your nest egg for your retirement and for an asset that you can leave to your family.

You may enjoy the type of business that you are contemplating because it may suit your skills or it may meet your desire to run your own operation and be your own boss. However, if it does not stack up as being profitable then there is every chance that the business will not be financially beneficial, so you may have to think again.

When checking out the financials do the following things:

  1. Look at all the financial statements that the franchise has

  2. Obtain the profit and loss statements and balance sheet figures fully checked out by your accountant and compare them with other similar businesses in that particular industry.

  3. If you need to get detailed figures, always check them against the tax returns and Sales Tax returns. The thinking is that, the figures sent to the IRS for tax, will always be the minimum that the business will be wanting to present.

  4. Check thoroughly the balance sheet to ensure that the assets that are taken over are acceptable and are at a fair price. See if any adjustment has to be made for assets that are damaged or obsolete and either reject them, or obtain a heavily reduced price for them.

  5. Look at the liabilities and see whose responsibility it is to meet the debts of the business.

  6. You should also check over the cash flow projections for the business. There needs to be sufficient cash generated to meet the bills as well as pay staff and yourself a reasonable salary.

  7. You also need to monitor your cash flow to identify if there are any requirements or cash needed at a later date. This is something that will have to be discussed with your lending institution or bank. The cash flow area is critical to the success of your business so make sure that enough time is given to assessing these issues because of their critical nature.


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