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A Good Accountant Essential to Franchisee Financial Health

by Patricia Schaefer

Just as every franchisee needs a qualified franchise attorney, it is also important that prospective and current franchisees have an accountant on their franchise team; that is, an accountant who specializes and has experience in franchising.

James Layton, CPA, CFE, and director of Systems Support & Development for top accounting firm Fiducial, says that most franchisees are entrepreneurial and operations-oriented, but many lack the financial skills necessary to operate a business.

"A good accountant," says Layton, "can provide them with the information necessary to make informed decisions and serve as a trusted advisor on financial matters much like an individual's family doctor. We all know we want to be healthy but we're unsure of all that we need to do. Our family doctor gathers information, such as blood tests, x-rays, etc. and uses that information to advise us on health matters. The accountant in a similar fashion gathers information, such as reviewing costs of goods sold, ratio analysis, etc. and uses that information to advise the business owner on financial matters."

Prospective franchisees

Even before a prospective franchisee makes an application to the franchise of their choice, an accountant is needed. So says Michael P. Goodman, Managing Partner of Janover Rubinroit, LLC, a Certified Public Accounting firm where franchisor and franchisee financial services have been a specialty for years. In fact, Goodman says the accountant's help with the initial acquisition is the most important service provided to franchisees; something franchisees "cannot do by themselves."

Some vital services Goodman says an accountant can help prospective franchisees with include:

  • Analyzing and ascertaining the financial strength of the franchisor; in part, by reviewing key papers such as the Uniform Franchise Offering Circular (UFOC).
  • Assessing probable earnings and profitability. Will a particular prospective franchisee/location be able to sustain the typical profit and loss experienced by the franchise system's franchisees? Can it provide the level of income required? What is the probable return on investment?
  • Determining whether or not royalty and advertising fees are reasonable, and if advertising monies will be spent in a way that will benefit that particular franchisee. Case in point: In researching a franchisor's advertising practices for a prospective east coast franchisee, Goodman cites an instance where this particular franchisor was spending their national advertising monies solely on their west coast franchises.
  • Picking a franchise system that is best suited to prospective franchisee's investment resources and goals.

Layton of Fiducial adds these services to the mix that an "experienced accountant" can help with:

  • Developing a business plan. The importance and necessity of a comprehensive business plan cannot be overstated. Prospective franchisees should unquestionably use the services of an experienced accountant to help put together their business plan.
  • Foreseeing potential issues and helping to identify unreasonable expectations.
  • Assisting with financing; i.e., preparing the necessary documents, such as financial projection, for any needed financing.

Current franchisees

The need for an accountant does not cease and desist once an individual becomes a franchise owner. According to Layton, a franchisee's accountant "should become a trusted advisor contributing to the overall [continued] 'health' of the business." Here are some key services he says accountants provide to current franchisees:

  • Preparing monthly financial statements for the business. Only with accurate, timely financial information can the business owner make reasoned decisions -- conditioned with the assumption that the accountant has helped the franchisee understand these statements. These statements assist the franchisee to understand how his business has performed over the period and how it measures against the franchisee's goals.
  • Assessing the business. Regular, meaningful meetings with the accountant can help a business owner identify potential problems before they affect operations.
  • Being there for advice whenever questions arise. Franchisees should feel comfortable enough with the accountant to call with questions whenever they arise. Most good accountants would much rather give early advice than fix problems.
  • Providing tax planning advice. Because most franchisees' businesses are closely related to their personal finances, the tax planning should encompass both business and tax planning.

In addition to the above, Goodman of Janover Rubinroit says accountants can help current franchisees with the following:

  • Monitoring compliance with franchise agreement.
  • Preparing and monitoring tax returns and payments.
  • Acting in the capacity as financial consultant; i.e., providing counsel and methods to build a quality investment portfolio.

Any individual considering buying a franchise or other business would be well served by consulting with an experienced accountant early on. Among other things, buying a business necessitates structuring the purchase details in the most tax-effective manner. If this isn't addressed properly at the start, it may seriously and adversely affect chances for success. Having an experienced accountant as part of the franchise team early on helps franchisees get off to the best possible start.

Copyright 2009, Attard Communications, Inc.

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