Shelley Nadler writes:
The simplest way to check a franchisor’s financial health is to ask the franchisor for further information.
Another option is to talk to existing franchisees to find out if their franchise has been a financial success. If you’re considering a franchise that’s new, you should ask to see financial records for the pilot operation.
Where the franchisor is a limited company in the UK, you can request its latest published accounts - for a nominal fee - from Companies House. However, be aware that a company has nine months to file its accounts from the end of its financial year.
This means the accounting information publicly available could be out of date. As a result, you may need to ask a franchisor to confirm that there has not been any deterioration in its financial position since the accounts were prepared.
It’s also possible to carry out credit checks on companies through global business databases, such as Dun & Bradstreet. The report will set out historical financial information and information on the risk rating of that company.
If you require further information regarding any financial information relating to a franchise, you should speak to an accountant.
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.
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