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What kind of financial information should I look for when investigating a franchise opportunity?
Firstly, you must be wary of any information that is being provided to you by a franchisor. Not because franchisors are inherently dishonest, but they are keen to recruit franchisees and will undoubtedly paint a rosier picture of their franchise than perhaps the situation actually merits. In other words, you must carry out your own research. The bfa’s code of ethics does impose obligations on franchisors to provide you with ‘full and accurate written disclosure of all information material to the franchise relationship’. Further, the guide to the ethics of franchising requires the franchisor to provide a prospective franchisee with a set of its latest certified balance sheet and profit and loss accounts, which should be dated not more than 12 months prior to the date they are handed to the franchisee. The franchisor should also provide the franchisee with a statement to the effect that there has been no decline in its financial position since the date of the accounts. Finally, the franchisor should confirm that it has never had any action taken against it in consequence of debts, save for any genuine disputes to which it was advised that it had at least an arguable case.
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