Do Your Homework Before You Put On Your Apron !!!
Factors to Consider When Choosing a Franchise
2] Advice from Professionals
Unless you are an experienced expert in law and accounting, it is strongly recommended that you consult with a lawyer and an accountant or if necessary, an audit firm.
a) Auditors – Using a reliable audit firm can assist in performing a due diligence check on the accuracy of the franchisors or existing business owners’ financial information. Auditors will verify if the internal controls surrounding the financial reporting process has been adhered too. They will also search for potential unrecorded liabilities and test for compliance with regulatory and government organizations. Audits are not cheap services. However, proper due diligence will reduce the risk of buying a business or brand that has hidden skeletons.
b) Lawyers – A lawyer can read through the legal documentation and educate you about you about your legal obligations under the franchise contract. Franchise contracts and its related documentation are long, tedious, boring as hell and complex. Within these documents, there are many little clauses in ultra fine, fine print that can be missed by the lay person. Attempting to fix a legal problem years down the line will be extremely expensive to handle especially if that legal matter was not discovered during the due diligence phase. Therefore, choose a lawyer who is experienced in franchise matters to guide you through all the legal aspects of dealing with a franchise.
c) Accountants – An accountant can analyze the franchisor’s annual financial statements through the use of accounting ratios. A good accountant will educate you and explain to you what the numbers are saying or not saying. If you need a business plan or a forecast to assess the implications of different types of financial scenarios, then the accountant is your go-to person. Based on their advice and information, they will help you choose the best franchise that financially aligns with your capital resources and end goals. The best accountants will also throw in some tax planning and exit planning strategies in the mix to make sure that you get the most bang for your buck from investing your hard-earned money into your chosen franchise.
d) Banks, financial institutions, lenders or investors – Depending on where you live, some banks and lenders may be able to provide you with a report or financial profile analysis about the franchisor. It is possible that the bank or financial institution may have access to financial reports of the franchisor that are not accessible to the general public. It is important to remember to have your lawyer, accountant and auditor analyze this report before you rely upon it. Some franchisors may give banks and lenders unrealistic, overstated revenue projections in order to encourage the bank to provide financing to sell more franchises. A bank approval of a franchise loan is not a foolproof indication that the franchise is a safe or good investment but it is a reasonable opinion to consider in your overall due diligence evaluation.
