One of the most
important tools a franchise candidate can use is a financial model. With more
franchisors providing a financial disclosure in Item 19 coupled with the fact
that franchisors can provide cost data to franchise candidates, there should
be sufficient information available to do a cash flow projection, ROI and pro forma income statement.
Despite this fact, there are still a number of franchise candidates that fail
to utilize financial models.
Using these financial tools
aids a candidate in establishing a strategy for launching and operating their
new franchise. Financial models, especially a cash flow projection, is important for identifying the amount of capital the new franchisee will need. If a
franchisor doesn't provide an Item 19 disclosure a franchisee candidate should even consider walking away from the franchise opportunity. If the decision is to
proceed, then the candidate should obtain as much financial
information as possible from the franchisor and existing franchisees. Finally, if necessary be sure use an accountant to assist in this process.