Buying a Franchise?
Buying a franchise is a big decision and you need to consider it really carefully. If you’re investing a large amount of money you want to be as sure as you can that you’re making a wise investment.
- Get it checked out before you invest..!
That’s where we can help. We’re specialist franchise accountants and we’ve done this many times before. This means we know what we’re looking for and how to interpret the numbers.
And because of our experience in franchising we know the key areas to watch out for!
So, once you’re ready to start your investigations, familiarise yourself with the steps you should follow as part of your ‘due diligence’.
- Working through each of these will mean you have carefully considered the financial aspects of your purchase before you invest.
We recommend you work through each step in a measured way, without getting too ’emotionally involved’ just yet. The main steps to follow are:
Pre Purchase Review
If you’re looking to buy a franchise, you definitely need to check out the numbers to make sure they stack up.
- This is one of the most critical elements of your investigation!
If it looks like the numbers don’t work before you even start, there’s little chance they will get better once you’re underway!
You need an accountant to work through the numbers with you carefully and check if the opportunity is feasibile.
We follow a structured and comprehensive approach when we conduct your Pre Purchase Review, which means we cover the main areas of financial concern.
Costs: The Pre Purchase Review costs:
- $450 + gst for a brand new business,
- $695 + gst for an existing business, (it’s a bit more because we need to review the previous trading figures)
The results of the Review will tell you some really valuable information:
- The level of sales you need to achieve to earn a decent living
- How much you need to pay your bills
- We’ll also give you some important financial questions to consider and discuss with the franchisor
Contact us for a Pre Purchase Review of the franchise you are considering.
A business plan is the road map for your business. It’s important to have one because it will outline the steps to achieve your business goals.
- Your business plan identifies the actions you need to take
Some franchisors will provide you with a template business plan to complete as part of your application. This can be a bit daunting if you’re not familiar with what needs to go in it. We can assist you with completing the details.
Other franchise groups leave the business planning up to you. If that’s the case for you, don’t worry, we have a straightforward planning process we can work through together.
- It’s a straight forward and practical approach
- Based on our experience from working with many franchise owners
- Clearly written in plain English, with no jargon
- Easy to implement with clear action points to follow
It’s best if you prepare your business plan before you buy the franchise, then update it once you get going.
- If you are seeking bank finance your bank will require a business plan to accompany your loan application.
Contact us if you like some help with your business plan. (We have more detail on business plans below).
Cashflow Forecast and Profit Projections
As you progress further with your deliberations you will need to prepare a cashflow forecast and profit projections for your business. These give you more detail about the expected financial performance of your business once you’re fully up to speed.
- These can be particularly tricky if you are not familiar with the financial side of things, or how to put them together.
- They contain detailed financial information and rely on various assumptions.
- We strongly recommend you get specialist help.
The Projected Profit & Loss Statement shows the expected profitability of the business once you are up and running.
- It will show the expected sales income and expenses you are likely to incur
- You can then see how much profit will be left for you as a result
The Cashflow Forecast on the other hand, provides more detail about the cash side of things. It shows how the cash will actually move in the business once you’re up and running.
- It will show when the money comes in and goes out of the business
- This shows when you have a surplus of cash, and when you have a shortfall (that means no cash!)
- As a result, you can see how much ‘working capital’ you require, the money you need to pay the day to day expenses of the business.
- This is critical information to know..! You must be able to pay your bills!
If you are borrowing money to buy the franchise your bank will require you to provide a Projected Profit & Loss Statement, and also a Cashflow Forecast. (The banks want this information because they know it’s an important way to assess the financial viability of the business).
Again, we can help you here. We have prepared many of these reports and have become experts in how to put them together.
Contact us if you would like help with these reports. (We provide further detail regarding these reports below).
This is the structure that you will be operating your business through.
- It is very important you get the right structure for your business
- The structure you use has significant consequences for dealing with your exposure to trading risks and how to best deal with taxation
- This can be a highly complex area, and you should definitely obtain specialist advice.
As specialist franchise accountants we can recommend the best trading structure for your situation. And we will carefully consider your full financial position before we make our recommendations to ensure you obtain the best result.
Contact us to book an appointment to discuss your situation. (We provide more detail below regarding structures).
Feasibility Assessment – Pre Purchase Review. The best way to check if the business is feasible is with a Pre Purchase Review
- This is an initial review of the numbers to check the business can generate the profit you need
- It will identify the level of sales you need to cover your costs and make a decent living
- If you’re buying an existing business it’s important to review the previous trading figures (at least 2 years).
- If you’re setting up a brand new operation, or ‘greenfield’ site, it’s important to use strong estimates and look carefully at any assumptions used
- It’s more cost effective to do the Pre Purchase Review before going further with your investigations. This lets you see if its worth going any further. It’s best to do this before you do the Business Plan, projected Profit & Loss Statement and Cashflow Forecast. Or before you incur the additional costs of setting up your trading structure.
- Cost: $450 + gst for brand new business
- Cost: $695 + gst for existing business (with prior year trading history)
Projected Profit & Loss Statement. This shows the expected profitability of the business once you are up and running.
- It will show the sales income you are likely to achieve
- It will also indicate what your expenses will be
- You will then see the profit you can expect as a result
Cashflow Forecast. This is a forecast of how the cash will actually move in the business once you’re up and running.
- This is critical to the success of your business
- It will show how much working capital you require
- It will show when the money from sales is expected to come into the business and when it will go out to pay expenses
- You will need this forecast if you’re applying for a bank loan
Trading Structure. This is the structure that you will be operating your business through. This is a complex area and requires specialist advice. The typical structures are:
- Sole Trader
We will find the most suitable structure for your situation and the one that best suits your needs.
- We can establish your trading structure
- We can also complete the various registrations which are required by ASIC and the Australian Tax Office.
- These will all be included as part of the set up costs
Business Plan. Each bank will require a business plan to accompany your loan application. The business plan sets out the direction for the business and outlines how you will achieve your goals. It also provides the following information:
- An overview of the business, how it works and how it makes money
- The experience of the owners and their relevant skills
- Projected Profit & Loss Statement
- Cash Flow Forecast
- Statement of Assets & Liabilities
- Your goals and objectives and
- The action plans you will take to achieve your goals
The banks will require a Business Plan whether or not the brand is ‘accredited’ or ‘non accredited’.
Accredited Brands. If the brand you are buying is accredited with the banks, they will lend 50 – 60% of the purchase price against the business itself. You will need to find the balance, which could be from another loan with real estate security, or from private sources.
Non Accredited Brands. If the brand is not accredited, the banks will still lend you money, but they will be looking for a higher level of real estate security to support your position. We can certainly assist you in this area.
Franchise Brands we have experience with. We have dealt with a broad range of franchises including:
- Pizza Hut
- Bakers Delight
- Muffin Break
- Jamaica Blue
- Ben & Jerry’s
- Le Wrap
- Anytime Fitness
- Domino’s Pizza
- Mortgage Choice
- Pack & Send
- Jetts Fitness
- Hire a Hubby
- Terry White Pharmacies
- Raine & Horne
- Shingle Inn
- Laser Clinics Australia
- Kwik Kopy
- VIP Cleaning
- Battery World
- Sushi Izu
- The Drug Detection Agency
- Refresh Renovations
- Laing + Simmons
- Tile Rescue
- Home Instead
- Baskin Robbins
- Jump! Swim School Centres
- Source Wholefoods
- Drug Safe Franchise
- Top Snap photography
- Books & Gifts Direct
- Games 2 U
- Bing Boys
- Crocs Play Centres
- ERA Expense Reduction Analysts
- Express Commercial Cleaning
- Grout Pro
- FIFO Finance
- Coffee Club
- Gloria Jeans Coffee’s
- Juiced Life
- Link Brokers
- Mad Mex
- Young Engineers
- Outback Jacks Steakhouse
- Bridgestone Select
- Salts of the Earth
- Top Juice
- Senior Helpers
Full range of Franchise Accountant services
Knight Partners provide specialist franchise services, such as:
- Business Health Check. This checkup has been specifically designed for franchise businesses. It checks the financial health of your franchise and measures performance against a range of indicators. It highlights the areas where the business is healthy, and where it needs to improve
- Performance Improvement. If the Health Check shows that performance improvement is required, we will work with you to develop and implement specific strategies to improve your financial position.
- Benchmarking. Is an important part of franchising and has many real benefits. It is the process of comparing one franchise with others. We know how to prepare these numbers and interpret the results.
- Franchise Annual Review Meeting. This is a review of the financial performance of the franchise over the previous 12 months and sets the goals for the coming 12 months. It also considers the overall tax position of the owner, any upcoming funding requirements and their succession plans.
- Tax Advice. Tax planning is one of the most important elements of running your business. We make sure you are operating through the most effective structure, for business purposes as well as tax. We also help you stay on top of managing your tax obligations and keep them to a minimum.
- Cash Flow Management. We prepare a realistic Cash Flow Forecast and Budget which can really assist you in managing your cashflow position.
Once you are up and running we can help you with:
- Bookkeeping and BAS
- Tax Planning, Tax Returns, Financial Statements and Year End compliance matters
- Benchmarking and Performance Improvement
Specialised Services for Franchisors
- Workshops and seminars for your franchise network and field staff
- Conferences and keynote speeches – lively and engaging sessions on business and finance
- The 5 Essential Elements for Business Success
- Your Business Health Check
- How to increase sales and profit
- Franchise Essentials – business basics for new franchisees
- Finance for Non Financial people
- Effective business meetings and time management
- How to avoid the 7 things that can send a franchise broke
Specialist Franchise Accountant – Peter Knight
Buying a franchise is often a major investment for many people. For some, it’s one of the biggest purchases they’ll ever make, next to buying their own home.
But we’ve found that many of those who buy a franchise have no experience in running a business and don’t know how to handle the business and financial aspects.
That’s why it’s so important to work with a franchise accountant who has experience in franchising and business. They are best placed to guide you with buying your franchise and then working with you as you run it on a day to day basis.
Peter Knight is a specialist franchise accountant. He understands franchising and the way it works. And he talks to you about your business in ways you can understand, not full of accounting jargon but in practical, useful ways. This means you can make better business decisions.
Peter is a fully qualified Chartered Accountant and CPA, with a Masters degree, so he has all the technical aspects covered. He is also a former President of CPA Australia (NSW).
He is regarded as an expert in the business and financial aspects of franchising. He regularly presents at conferences and workshops to the industry. This means he is up to date with the issues you are facing and is well placed to help you with the situations you’ll encounter.
He has dealt with many franchise brands and also works with the Senior Franchise Bankers of Westpac, ANZ, NAB and Commonwealth Bank.
He is the founder of the Franchise Accountants Network, a group of accountants around the country with specialist skills in franchising. He is also the co-founder of Smart Franchise, which provides business and financial education to the franchise sector.
Contact Peter at Knight Partners to discuss how you can work together. Use the Contact page to send him an email.