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Sona Advocated Cash Accounting in Lieu of GAAP
Writer's Note: A previous Sona article in Blue MauMau sparked a considerable number of questions regarding Sona MedSpa's accounting methods as shown in its Uniform Franchise Offering Circular. By way of further clarification, I'm contributing to the ongoing discussion by providing Sona's 2003 UFOC and a franchisee interview regarding it. The pdf file that was mostly image was converted by Mr. Blue MauMau to a pdf text file by an OCE text reader to shrink the memory space used. As a result, some of the text has typographical errors, e.g., franchisee can sometimes read franchmee.
FRANKLIN, Tenn. (Blue MauMau) - The UFOC of Sona MedSpa (pdf, 203 pgs) shows how its financial statements were not based on General Accepted Accounting Principles (GAAP), says a franchisee. The franchisee explained that the reason people became enticed by the business concept was that when they looked at the UFOC, they saw financials that were cash based. GAAP observes accrual accounting, in which revenues must be matched in a timely fashion to expenses associated with the delivery of services. He said Sona tells you that 93 to 95 percent of the time it would take five treatments for the hair removal process, which is a very complex medical issue. So when franchisees sell packages of five treatments, they don't fully recognize that it takes 12 to 19 months to deliver those services. He said, "They showed cash-based numbers, so it was very deceiving to even those who had high-level executive backgrounds." He said he knows of two franchisees who were CPAs and they didn't figure it out until they were well into the franchise.
The franchisee explained that Sona tells franchisees that they have to continually promote to get new clients, which is another huge expense, and by doing so you are then able to fund future treatments. But he said you soon realize you are going to run out of money if you continue to operate the way they want you to. Even though Sona knows you will have the expense of supplying the treatment later, he said it takes out its royalties from your upfront money.
|Sona UFOC'03.pdf||1.55 MB|