buying a franchise
Pre-purchase Review
When you’re buying a franchise it’s vital that you, the prospective franchise owner, examine the business in detail. The process is known as franchise due diligence. Your franchise due diligence will help you assess the risks and financial opportunities of the franchise.
This article explains what’s involved in conducting franchise due diligence. It also explains how our Pre-purchase Review can help you assess the financial aspects of buying a franchise.
What is franchise due diligence?
Franchise due diligence refers to the investigations you make that will help you decide whether the franchise is a good deal or not. It will help you form a picture of the business and the franchisor.
There are three key aspects of the franchise to consider as part of your due diligence:
Financial: Understand whether the franchise is likely to be financially viable and quantify the financial risk.
Commercial: Become educated about the brand, business model, franchise support, franchisor reputation and leadership team.
Legal: Understand your obligations under the franchise agreement as well as those of the franchisor.
Do I need professional advice?
Yes, your franchise due diligence should include professional advice from an accountant and a lawyer.
A franchise may seem like a safe way to get started in business, but there are no guarantees it will be financially successful and the law may not always protect you if things go wrong.
Expert franchise advisers can help you properly assess the franchise. You will need advice from a specialist franchise accountant and a lawyer.
Franchise Accounting & Tax are specialist franchise accountants. We’ve worked with hundreds of franchisees and have developed a structured process to advise franchise buyers. The first step is the Pre-purchase Review.
What is included in the Pre-purchase review?
The pre-purchase review is a written report that we prepare for you. It will help you assess the financial aspects of the franchise you are interested in.
In the franchise Pre-purchase Review we address the essential financial questions a franchise buyer should consider:
How much will it cost each year to operate the franchise?
What level of sales are needed to cover the costs, repay your loans, and provide the income you need?
What further investigations should you undertake to help confirm whether the financial goals are achievable? We’ll provide a list of questions to help you dig deeper and clarify your understanding of the franchise.
What are the financial risks and how can you mitigate them?
Once we have prepared your pre-purchase review we will explain the report to you and answer your questions.
how much does a pre-purchase review cost?
We charge $1,295 + GST for the Pre-purchase Review. This includes our initial consultation with you, preparation of the written review, and the time we spend going through it with you.
In addition, we recommend that a background check is performed on the franchisor. This includes background checks on the company and directors (ASIC), a credit check and PPSR check. We use a credit reference agency for this, and the cost starts at $100+ GST, depending on the type of check needed.
What information do you need for a pre-purchase review?
To prepare your Pre-purchase Review we need information that you will obtain from the franchisor. This includes the Franchise Disclosure Document and also any financial models the franchisor has provided.
If you are buying an established franchise we will also use the financial information you’ve received from the current owner of the business.
We will also ask you how you intend to finance the purchase of the franchise and how much you would like to make as a regular income.
How do I get started?
To get your Pre-purchase review underway, please contact us.
One of our Directors will then set up a conversation with you by phone or Zoom so that we can understand the stage yoú’re at in the franchise buying process. We’ll also let you know what information we need from you.