How important is it to get an accountant to check the financial information provided by a franchisor before I invest?

Alan Wilkinson writes:

When considering if a particular franchise is right for you, a key factor is understanding the financials of the business.

As part of the due diligence process, the franchisor should make available to you turnover and profit figures for the business and explain these to you in a way that allows you to understand how turnover is generated, how the cash flow of the business works and what costs you’re likely to incur.

You should understand what impact discounting may have on the profitability of the business, where the break-even point is and any critical pinch points, such as when a second van is required or new member of staff is needed.

It’s also important to understand the basis upon which the figures presented to you are calculated. Are you being shown an average for the network or the figures for the top performing franchisee?

In my opinion, you should seek professional advice before taking on any business venture. A good accountant may well spot something you have missed and be able to advise on the most efficient way to structure your company. It is, however, perhaps more important to understand the basis upon which the figures presented to you by the franchisor have been prepared.

Alan Wilkinson is head of franchise development at The Franchising Centre and has been in franchising for over 24 years.