The successful franchise is a mutually interdependent relationship founded on a value proposition that recognises the basic interconnectedness of the franchisor and the franchisee in building enterprise value for both. Financial analysis determines the perfect commercial balance in that relationship.
Financial Analysis is the foundation of your franchise programme. You need to examine the financial performance of your existing locations to determine whether your franchisees will be able to bear the franchise related fees. In addition, you want to know what financial returns and enterprise value could potentially be generated in a range of economic conditions. This detailed financial analysis examines the value proposition for each of the participants in the value chain: your suppliers, you as the franchisor, the franchisees and your clients or customers. Each of these needs a carefully balanced return for the business model to work. We use the data from your existing business and extrapolate that to a franchise network to determine whether the franchise model will provide sufficient return on investment for both franchisor and franchisee. Financial analysis assesses the financial feasibility of your franchise plan. Our franchise consultants use a dynamic financial model developed specifically to address the financial considerations of your franchise network. We examine revenue and cost drivers, capital commitments and resource requirements under different network growth scenarios.
The financial analysis also tests the sensitivities for crucial elements that are potentially volatile such as rent or cost of goods. A critical component of the financial analysis requires a precise calibration of fees: the initial franchise fee and royalty and marketing levies. We need to guarantee that there is sufficient financial return to attract and retain motivated franchisees while ensuring that you, the franchisor meet your costs and also achieve adequate returns. We validate these returns under different network growth scenarios and extrapolate the potential enterprise value of your network after a reasonable period of expansion. In some cases, the financial analysis may reveal concerns about financial feasibility for the franchised unit and initiate a refinement of the franchise model. We teach your team the economic model we develop so that you are able to evaluate the feasibility of individual sites and benchmark head office costs. The financial input and output derived from the financial analysis will be used to structure the commercial terms and draft the Franchise Agreement and Disclosure Document. It is critical that you get the commercial terms correct from the start as you will be bound to them for the term of the franchise.