If you’re buying a franchise, be sure to check out the financial viability of the franchisor.
There's an element of risk with buying any business, so it’s important to do your due diligence before you buy.
But, when it comes to buying a franchise, be sure to do some checks on the financial position of the franchisor as well.
Some franchisors include their financial statements in the Disclosure Document. This gives you the chance to review their figures and make an assessment.
If they’re not included, the franchisors are required to include an audited Solvency Declaration, which states they can pay their bills, ‘as and when they fall due.’
So, with no financials to review, you should ask some questions around the financial sustainability of the franchisor, as you're essentially investing in their business too.
You'll be paying your initial franchise fee to the franchisor and then the ongoing royalty payments. So, you want to be sure their business will be around to support you into the future.
Some questions to ask:
Solvency, both current and expected for the future
Expected future income and expenses
What these forecasts are based on
Planned expenditure in the future
Funding of ongoing support
It's quite OK to ask these questions, and more if you can. You’re making a significant investment so you want to be sure the brand you are investing in will be there for the long term.
Let me know if you need a hand.
Peter