expert advice: Kate Groom | Co-founder and Director | Franchise Accounting and Tax
Five key questions for your financial due diligence Kate Groom is co-founder and director of Franchise Accounting and Tax. She has previously worked for franchisors and as a business adviser. Kate’s focus is on helping clients understand the financial aspects of running a business and on business planning and coaching. She is also a director of a number of ‘not for profits’. https://www.franchiseaccountingandtax.com.au/
Financial due diligence is the process of investigating the financial potential of the franchise you’re interested in and understanding the financial risks. It’s a good idea to get advice from an expert franchise accountant, however it’s also important to know what questions to ask. In this article we’ll highlight some of the important questions a franchise buyer should consider as part of their financial due diligence. No matter how much you love the idea of owning a business, it’s important to assess the financial potential of the franchise. The financial due diligence stage of buying a franchise is where you work out what it will cost to buy the franchise and operate the business. Once you know the costs, you can work out your sales target and assess whether it’s achievable. Good financial due diligence helps reduce the risk of investing your money in a business that can’t deliver the financial results you need. Before you start your financial due diligence you’ll need to obtain some information from the franchisor. You’ll find this information in 18 business franchise MAGAZINE
the Franchise Disclosure Document. Some franchises also provide financial information in the form of a spreadsheet. For financial due diligence, you’ll be looking at the sections that show the costs to set up and operate the franchise, and any information about the financial results of existing franchisees, such as sales and costs. If you’re buying an existing business you will also have the financial results of that business, which you will obtain from the business owner or their broker. It’s important to understand that most franchises don’t provide projections or forecasts of financial results. It will be up to you and your franchise accountant to create financial projections based on the information you have received and your understanding of the business. To help you in your financial due diligence, here are five key questions every franchise buyer should consider.
1. What are the set-up costs? When you buy a franchise you will need to finance the setup costs for the business. It’s important to understand what these costs are, as you’ll need to be able to cover them either with your own funds or by borrowing from a bank or finance company.
