Q.

How can I check a franchisor’s financial status before I invest?

Author: Shelley Nadler

answered by Shelley Nadler

Legal director at Bird & Bird

Where the franchisor is a limited company in the UK, you can request its latest published annual accounts for a nominal fee from Companies House.

However, you need to be aware a company has nine months to file its accounts from the end of its financial year. This means the information publically available through Companies House could be out of date.

If the franchisor is an overseas business, it may well be that it has had to comply with certain disclosure requirements that include providing detailed financial information. Requesting a copy of the disclosure document would give you information on the franchisor’s financial track record.

Under the British Franchise Association’s code of ethics, a franchisor must present a franchisee with certain financial information under the pre-contractual disclosure requirements as follows:

• A set of the franchisor’s latest certified balance sheet and profit and loss accounts, which should be dated as certified by its auditors or a qualified accountant not more than 12 months prior to the date they are handed to the franchisee.

• Confirmation the franchisor has never had any action taken against it in consequence of debt, save for any genuine disputes to which it was professionally advised that it had at the least an arguable case or, if confirmation cannot be given, a full explanation of the position.

Finally, it’s possible to carry out credit checks on companies through global business databases such as Dun & Bradstreet. A report will cost around £65 plus VAT and will set out historical financial information and information on the risk rating of that company. 

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.

Want to be your own boss? Start today!

  • Relooking

    Relooking is a beauty franchise, offering a variety of skin care and anti-aging treatments... find out more

    £18,000 Minimum Investment
  • Sweets and Treats Vending

    Sweets and Treats Vending is a confectionery distribution franchise company... find out more

    £9,950 Minimum Investment
  • SuperGreen Solutions

    SuperGreen Solutions is an advisor, supplier, and installer of energy-efficient solutions to… find out more

    £178,000 Minimum Investment
  • Wikane

    Wikane is a business development franchise, specialising in working with SMEs to help them… find out more

    £38,000 Minimum Investment

You have pending

More from our business portfolio

  • Global Franchise