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Is Your Franchisor Obtaining Franchisee Financial Reports?
Posted by Ed Teixeira
I've yet to see a franchise agreement that doesn't require franchisees to furnish its' franchisor a copy of their profit and loss statement and balance sheet on a quarterly and annual basis. The requirements under Records, Audits and Reporting Requirements will include copies of franchisee tax returns upon request. Despite this provision, I'm of the opinion that the majority of franchisors,except those that make an Item 19 disclosure, fail to follow through on this area. I acknowledge that I can't cite any data to support this opinion except my experience speaking with numerous franchisors over the past several years and the lack of any available data to the contrary. ( I welcome any information regarding this issue)
Franchisors that don't request and collect this information and franchisees that fail to provide it are doing both parties a disservice and here's why:
- Franchisee financial reports will reveal the financial health of the franchise network on an individual and collective basis.
- Potential or current franchisee problems can be spotted before things get out of control.
- Important metrics including franchisee revenues, gross margin and operating expenses can be gathered.
- Strategic decision making by the franchisor is greatly enhanced by having all of the financial facts.
Franchisors need to gather franchisee financial reports on an on-going basis. This information is important for a number of reasons. A failure to compile this information is a disadvantage for the entire franchise network
Posted on July 6, 2012 at 2:08 PM
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