Franchise Acquisitions - Verifying Financials

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November 10, 2022

by a searcher from University of Notre Dame in Houston, TX, USA

For those in the franchise world who have acquired existing franchise locations:
How have you approached verifying the target location's financials?
Did you have a QoE, QoE lite, or other 3rd party report created?
Did you perform the financial due diligence yourself - if so, how did you approach it?
Did you find a method to verify any of their expenses OR did you just spot check with existing FDD data etc.?

Thank you in advance for all of your help!

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Reply by a searcher
from Vanderbilt University in New York, NY, USA
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Reply by a searcher
from University of Maryland at College Park in Havre De Grace, MD 21078, USA
While FDDs provide insight, I would certainly perform a QoE. This should be one of the easiest (and less costly) QoEs because of ^redacted‌'s points. Verification of expenses is a little different. COGS is easier if the franchisee can only produce with items purchased directly from the third party verifiable franchisor's value chain. Expenses are not always tracked well by franchisees and franchisors usually don't care because they calculate their royalties and fees based on the top line. Franchisees of smaller franchises are just like mom and pop main street businesses and commonly barter, exchange, and pay out of pocket for the small things which may add up in small locations as a percentage of revenue.
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