Finding Value: The Roles of Accountants in Franchising

Vol. 17 No. 2

By

David Gurnick and Tal Grinblat, Lewitt Hackman and Rex Poulsen, CPA, and Peter Weir, CPA, Hutchinson & Bloodgood, LLP

Lawyers typically view the accountant’s role in franchising to be mainly auditing the franchisor’s financial statements and consenting to their use in the FDD. But accountants can play other valuable roles, from developing franchise programs, to advising on certain items of the FDD, to consulting with franchisors and franchisees on business issues.

The FTC Rule requires that the FDD include three years of audited financial statements. A new franchisor may opt to present unaudited financial statements for its first year or partial year (although in California, if unaudited statements are provided, they must be reviewed by an independent CPA). Either way, every franchisor must have an independent CPA perform an audit or review of its financial statements. In addition, the application to register the FDD in franchise registration states must include the auditor’s consent for the franchisor to use the financial statements in the FDD.

Before issuing the required consent, the independent CPA is required by professional auditing standards to read the FDD to identify and resolve any material inconsistencies between the audited or reviewed financial statements and the other information in the disclosure document.

Under the FTC Rule, the Cover Page of the FDD must tell potential franchisees: “If possible, show your contract and this information to an advisor, like a lawyer or an accountant.” Thus, an additional role for accountants is to review the FDD and franchise agreement and consult with prospective franchisees on the advisability of investing in a franchise system.

A prospective franchisor or franchisee should have a business plan, including projections of revenues and expenses, as well as a narrative concerning the business being developed. Accountants can help franchisors or franchisees prepare these business plans.

Advertisement

  • About Franchise Lawyer

Cutting Edge Conference


  • Editorial Board