Dig Into Due Diligence by Diana Capirano Certified Franchise Consultant
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hen exploring a resale, the level of due diligence will be driven by the complexity of the business model and how the owner is performing. Evaluation of resales must be comprehensive, even granular to mitigate risk. Although franchise systems are the same, owners are not, which leads to a great degree of variability in financial and operational performance. A holistic approach is best in assessing the overall health of the business. Many buyers think they just need to evaluate financials. Not so! If you’re not prepared to ask the how and why behind the numbers, you may miss a whole lot more.
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Following are the 3 most important categories and items that are fundamental in disclosure. FINANCIAL Standard disclosure is the past three years’ tax returns and corresponding profit-and-loss statements (P&Ls) and balance sheets. Also request current YTD (Year-to-Date) information. Tax returns tend to be of most value because they are holistic. Make sure the financials are verifiable or reviewed by a CPA as they are not audited. In some cases, a cash-flow analysis may be available. If not, view bank statements to verify money in and money out. • If the business carries accounts receiv-
Hiring a CPA and attorney to represent is not an option. They are needed to assist with this process as well as negotiate and structure the deal.
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