Get a clear view of your franchise’s financial health.
Some liken it to a checkup; others to a scorecard. Whatever feels most comfortable to you, using franchise financial statements to gauge how the franchise operation is doing is essential. It’s just as essential to get professional help from franchising experts like FranSource. Over the course of 30 years, we’ve been advising franchisors about this process.
Simply put, franchise financial statements are important because you can get a clear picture of the franchise operation’s current standing and consider any underlying trends. You can only make informed decisions and effectively manage your business by having this knowledge.
Perhaps more importantly, there are very specific franchisor requirements for including franchise financial statements in the FDD. You don’t want to fail in this regard after expending so much initial effort and investment into setting up your franchise operation.
What can you learn from franchise financial statements?
Keeping to the basics, there are financial disclosure requirements dictated by the FTC and individual registration states that must be met. This is a non-negotiable, and FranSource has extensive understanding of what is required both during the initial development of the franchise concept, and after the franchise is in operation.
But beyond requirements, there are “tells” that franchise financial statements can provide. The financial statements provide insights into the profitability, financial position, and cash flow of the franchise operation. You can track performance and identify trends to help you plan for the future and minimize risks.
The balance sheet and income statement represent the most crucial of franchisor financial statements for franchisees. The balance sheet summarizes the company’s worth at an established time, so you can see the franchise company’s solvency and financial health. The income statement outlines data such as the company’s income, expenses, and net income, so you may see its profit or loss. Earnings information is what many people refer to as the “bottom line” of the business and what we call the true “financial picture” of the franchise operation.
The more you learn, the more you can earn.
FranSource helps franchisors translate the information gleaned from their franchise financial statements into actionable insights. According to the Harvard Business School, financial statements are successfully employed to measure impact, determine budget, cut unnecessary costs, examine the broader health of the organization, and drive future endeavors. For instance, once you see how cash is generated and used in your franchise operation, you will gain a better view of the state of your business.
A profitable picture is nice, but fully identifying the source of earnings can provide the context to quickly change your opinion. As an example of meaningful contrast, a steady increase of income from royalty and other continuing fees is more favorable than only generating income that is concentrated in more and more franchise sales and the corresponding initial franchise fees. The former likely means franchisees are successful, while the latter merely means that there are more of them — especially troubling if they are not actually opening as scheduled or are underperforming financially.
Financial statements reporting requirements
Below are select FTC Franchise Rule financial statements reporting requirements for franchisors. Please contact us if you would like additional information regarding the financial statements reporting requirements.
Startup Franchisors
A start-up franchise system that does not yet have audited financial statements may phase-in the use of audited financial statements by providing, at a minimum, the following statements at the indicated times:
- The franchisor’s first partial or full fiscal year selling franchises: An unaudited opening balance sheet.
- The franchisor’s second fiscal year selling franchises: Audited balance sheet opinion as of the end of the first partial or full fiscal year selling franchises.
- The franchisor’s third and subsequent fiscal years selling franchises: All required financial statements for the previous fiscal year, plus any previously disclosed audited statements that still must be disclosed according to paragraphs (1)(i) and (ii) of Item 21.
You can also reference this blog, “What are the required financials for your FDD?” for additional information.
Existing Franchisors must provide:
- financial statements prepared according to United States generally accepted accounting principles (“GAAP”) and audited by an independent certified public accountant
- financials in tabular form that compares at least two fiscal years
- the franchisor’s balance sheet for the previous two fiscal year-ends
- statements of operations, stockholders’ equity, and cash flows for each of the Franchisor’s previous three fiscal years
- any of its affiliates’ statements under specified conditions
- when applicable, the financial condition of the franchisor and its subsidiary, if any
- separate financial statements for the franchisor and any sub-franchisor and parent when applicable
- NOTE: Current interim unaudited financial statements may be required by certain registration states; certain Franchise Registration States have different requirements
Please review Drumm Law’s blog, “What are the required financials for your FDD?”, for additional information.
If you need a franchise consultant to help you understand the financial statements disclosure requirements and other franchise financial statement indicators, contact us today. We’ll be happy to provide a free initial consultation to determine where you stand and if anything is missing in order to keep you in compliance with all applicable state and federal franchise laws and regulations.
Should I franchise my business?
There are many variables that a business must first consider before embarking on a franchise development program. As an initial step in determining the viability of franchising your business, we invite you to complete our 15 Key Questions Franchise Quiz.
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Read testimonials from clients who chose FranSource to be their franchise consulting company.
"Working with FranSource has been a fantastic experience! Their clarity, organization, and attention to detail gave us complete confidence every step of setting up our franchise operation."
“With FranSource overseeing the entire development of our franchise operation, we were confident that our franchise would be successful. However, seeing is believing. We just awarded another multi ...
"I can’t speak highly enough of the FranSource team. They retooled our franchise development process after we worked with another franchise developer that provided a cookie-cutter approach that was too generic for our needs."
“We granted our 150th ALOHA franchise last week and we wanted to say thank you for your team's tremendous assistance and ongoing support. When we began the franchise project, it quickly ...
"We chose to work with FranSource because of their deep understanding of franchising and the personal interaction we were confident we would receive. FranSource helped us to ...
"In addition to fully developing our franchise operation, FranSource assisted with other aspects of our expansion program. We are very pleased with the franchise development services we received and the ongoing support ...
"When we made the decision to expand our business through franchising, we knew that we needed to work with a franchise consulting firm who fit our brand. We interviewed several franchise development companies ...
"FranSource has impacted our business in ways we never imagined, beyond simply franchising. Rather than taking a cookie-cutter approach during the franchise development process, they ...
"I interviewed three different franchise companies and picked Fransource to assist us. I would recommend any prospective client to consider working with FranSource, you will not regret it!!!"
"Working with FranSource has been a fantastic experience! Their clarity, organization, and attention to detail gave us complete confidence every step of setting up our franchise operation."
“With FranSource overseeing the entire development of our franchise operation, we were confident that our franchise would be successful. However, seeing is believing. We just awarded another multi ...
"I can’t speak highly enough of the FranSource team. They retooled our franchise development process after we worked with another franchise developer that provided a cookie-cutter approach that was too generic for our needs."
“We granted our 150th ALOHA franchise last week and we wanted to say thank you for your team's tremendous assistance and ongoing support. When we began the franchise project, it quickly ...
"We chose to work with FranSource because of their deep understanding of franchising and the personal interaction we were confident we would receive. FranSource helped us to ...
"In addition to fully developing our franchise operation, FranSource assisted with other aspects of our expansion program. We are very pleased with the franchise development services we received and the ongoing support ...
"When we made the decision to expand our business through franchising, we knew that we needed to work with a franchise consulting firm who fit our brand. We interviewed several franchise development companies ...
"FranSource has impacted our business in ways we never imagined, beyond simply franchising. Rather than taking a cookie-cutter approach during the franchise development process, they ...
"I interviewed three different franchise companies and picked Fransource to assist us. I would recommend any prospective client to consider working with FranSource, you will not regret it!!!"
"Working with FranSource has been a fantastic experience! Their clarity, organization, and attention to detail gave us complete confidence every step of setting up our franchise operation."
“With FranSource overseeing the entire development of our franchise operation, we were confident that our franchise would be successful. However, seeing is believing. We just awarded another multi ...
"I can’t speak highly enough of the FranSource team. They retooled our franchise development process after we worked with another franchise developer that provided a cookie-cutter approach that was too generic for our needs."
“We granted our 150th ALOHA franchise last week and we wanted to say thank you for your team's tremendous assistance and ongoing support. When we began the franchise project, it quickly ...
"We chose to work with FranSource because of their deep understanding of franchising and the personal interaction we were confident we would receive. FranSource helped us to ...
"In addition to fully developing our franchise operation, FranSource assisted with other aspects of our expansion program. We are very pleased with the franchise development services we received and the ongoing support ...
"When we made the decision to expand our business through franchising, we knew that we needed to work with a franchise consulting firm who fit our brand. We interviewed several franchise development companies ...
"FranSource has impacted our business in ways we never imagined, beyond simply franchising. Rather than taking a cookie-cutter approach during the franchise development process, they ...
"I interviewed three different franchise companies and picked Fransource to assist us. I would recommend any prospective client to consider working with FranSource, you will not regret it!!!"
"Working with FranSource has been a fantastic experience! Their clarity, organization, and attention to detail gave us complete confidence every step of setting up our franchise operation. In every meeting, they were always prepared, always patient, and always knew what we needed before we even asked. We say all the time how lucky we were to find FranSource. They made the entire journey feel far less overwhelming and genuinely enjoyable. We’re grateful for the partnership and support Fransource has provided. If you’re considering franchising, you’ll be in great hands with their team."
- The Golf Crypt
"With FranSource overseeing the entire development of our franchise operation, we were confident that our franchise would be successful. However, seeing is believing. We just awarded another multi-unit franchise and we want to thank you and your team for the incredible commitment you demonstrated, and continue to demonstrate, to helping make our franchise a success. Our franchisees are extremely impressed with the documents, manuals and other materials you developed, which of course makes a great impression on our company. FranSource has definitely gone above and beyond our expectations."
- Gus's Fried Chicken
"I can’t speak highly enough of the FranSource team. This has continued to be one of our most valuable relationships. FranSource literally retooled our entire franchise development process after we worked with another franchise development company that provided a cookie-cutter approach that was too generic for our needs. FranSource quickly jumped in, became extremely familiar with our industry and business, and developed an extremely robust end-to-end franchise sales process within a couple of months. Due to the in-depth franchise knowledge demonstrated by the FranSource team, it was evident we needed to revisit our Franchise Disclosure Document and Franchise Operations Manual. FranSource conducted a thorough review of the documents and enhanced those documents as well. Steve and his team are truly franchise development specialists, and we highly recommend FranSource to other businesses that are considering franchising."
- Hudson Valley Swim
“We granted our 150th ALOHA franchise last week and we wanted to say thank you for your team's tremendous assistance and ongoing support. When we began the franchise project, it quickly became apparent that the FranSource team truly cares about our company and the success of our franchise. As we reflect on the growth of our brand, we believe we owe a large part of our success to the assistance and guidance FranSource has provided."
- Aloha
"We chose to work with FranSource because of their deep understanding of franchising and the personal interaction we were confident we would receive. FranSource helped us to quickly build a successful franchise model and were involved in every aspect of our franchise development process, including areas outside of the original development project to ensure we operated according to best practices. Every document and material FranSource developed for us was incredibly detailed and professional. To cite just one example, the 800+ page Operations & Policies Manual FranSource developed for our franchisees captured EVERY aspect of developing and operating a Smokin' Oak Wood-Fired Pizza franchise. Suffice to say that our franchises are extremely impressed. We greatly appreciate the expert assistance FranSource provided and continues to provide to help ensure our success. We strongly recommend FranSource to business owners that are considering franchising their business."
- Smokin'Oak Wood-Fired Pizza
"In addition to fully developing our franchise operation, FranSource assisted with other aspects of our expansion program. We are very pleased with the franchise development services we received and the ongoing support FranSource continues to provide. With Interior Magic franchises now located coast-to-coast, we feel very qualified to recommend FranSource to anyone considering franchising their business."
- Interior Magic
"When we made the decision to expand our business through franchising, we knew that we needed to work with a franchise consulting firm who fit our brand. We interviewed several franchise development companies to get started. It only took a single call with Steve and his team to know that FranSource was the best fit for us. It was clear they fully understand what it takes to successfully franchise a business and they were 100% committed to advising and supporting us every step of the way. When we began the franchise development process, it was hard to imagine selling our first franchise. However, less than a month after launching our franchise opportunity we granted our first franchise! Steve and his team were completely hands on throughout the entire development process and will continue to be a key asset to our company as we grow."
- Global Brew Tap House
"FranSource has impacted our business in ways we never imagined, beyond simply franchising. Rather than taking a cookie-cutter approach during the franchise development process, they examined every aspect of our business and provided valuable input concerning operational procedures that helped us further refine our system. FranSource continues to assist us with many aspects of our growth and their team has always proved extremely competent. We highly recommend FranSource."
- Compuchild
"I interviewed three different franchise companies and picked FranSource to assist us in franchising our business. I have worked with FranSource for a couple years now and we are so sure that selecting FranSource was the right decision. They are experienced, professional and caring. They have gone above and beyond and are a true partner. FranSouce has coached us through our first five locations which is part of their contract and none of the other companies offered this benefit. Truly, I would recommend any prospective client to consider working with FranSource, you will not regret it!!!"
- Evexia Wellness Spa
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