Perhaps it goes without saying that you should not buy a franchise from a franchisor that does not have a solid balance sheet. Still, even a solid balance sheet may not be enough; the big problem with franchisors, especially new franchisors that are still small is an issue with cash flow. These businesses are growing so fast there is never enough cash.

It takes money to run a company like a franchise system and the franchisor has obligations to all his franchisees, including support staff, marketing, and making sure that the business model can stand the test of time and handle all the regional variation that comes with growing a franchise in multiple parts of the country, or even internationally; easier said than done.

When studying a franchisor’s financial statements, you must pay particular attention to the profit and loss statement. Even if a franchisor has quite a bit of cash on hand on their balance sheet, that may not be enough to get them through a couple of lawsuits here, or a couple of regulatory issues there, or launching into a couple of new states in the next couple of months. All this takes money and lots of it.

Additionally, just because a franchisor’s balance sheet is strong does not mean that their cash position is strong. Often, on a franchisor’s balance sheet it will show things like brand-name goodwill. That might be worth millions of dollars, but it is not liquid money and a franchisor’s brand-name fluctuates with their abilities, and performance in the marketplace.

If you don’t understand financial experience yourself, or do not have a lot of schooling in accounting, perhaps, you should ask a franchise consultant to look over the franchisor’s financial statements for you before you buy. Please consider all this.

Lance Winslow is a retired franchisor – Lance Winslow’s Bio. Lance Winslow is formerly the CEO of WashGuys family of franchises for instance one of Lance Winslow’s favorite companies on the team; http://www.windowwashguys.com/links.shtml.

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