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When evaluating a franchise opportunity there is typically a great deal of focus directed on the business concept, franchise contract, franchisor support and franchisee performance. Each of these areas rightfully deserve attention. However, one area that requires as much if not more focus is in the area of financial analysis. Although, the term financial analysis can conjure up visions of boring number crunching this activity is important when considering the purchase of a franchise as well as any business. Since a franchise candidate has a limited amount of capital to invest in the franchise they need to be on target when identifying capital requirements.
They should have an accountant or qualified financial advisor to assist in the process. Here are some key items that need to be a part of the financial analysis:
If a prospective franchisee and their advisor perform a thorough financial analysis, in addition to evaluating the other areas of the franchise opportunity, then the odds of choosing the right franchise will increase dramatically.
About the Author: Ed Teixeira has over 35 years of franchise industry experience as a franchise executive and franchisee. He has served as a franchise executive in the c-store, manufacturing and home healthcare industries and has licensed franchises in Asia, Europe and South America. Ed operates FranchiseKnowHow which provides information and advice to prospective and existing franchisees and franchisors. He publishes newsletters for the franchise community.