How to read a franchise's financials
The numbers behind a franchise are scattered across the disclosure document, franchisee conversations and your own model. Here is how to assemble them.
Where do you find a franchise's financials?
What the disclosure document gives you
- The full fee schedule, initial fee, royalty, marketing levy and any other charges.
- Establishment cost guidance for a typical site.
- Item 6, the network's units opened, closed and transferred, your churn signal.
- Any earnings claim the franchisor chooses to make, with its required assumptions.
What it need not include is a profit figure. The absence of one is normal, not evasive, franchisors are not required to promise income.
Fill the gaps with franchisees and an accountant
Because the disclosure document stops at costs, the reality comes from franchisees, ask what they turn over, what it costs to run, and what they take home, and from an accountant who builds a conservative profit-and-loss after royalties, marketing levy, rent, wages and your own time. Verify any figures a seller gives you against bank statements and BAS, not a spreadsheet they prepared.
Build your own conservative model
Turn the inputs into a profit-and-loss for your situation: realistic revenue, all ongoing fees, rent, wages (including a market wage for your own hours), and working capital for the ramp-up. Stress-test it on pessimistic revenue. If it only works on the best case, treat that as your answer.
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Frequently asked questions
Does a franchise disclosure document show profit?
Not necessarily. The disclosure document must set out fees, costs and the network's opening and closing history, but franchisors are not required to include profit figures. The absence of one is normal; build the profit picture from franchisee interviews and an accountant's model.
How do I find out what a franchise really earns?
Combine three sources: the disclosure document (fees and closures), current and former franchisees (actual turnover and take-home), and an accountant's conservative profit-and-loss for your situation. Verify any seller figures against bank statements and BAS.
What financial red flags should I look for in a franchise?
High unit closures in the disclosure document, income claims without written assumptions, fees above the category median with no justification, and any seller who cannot back their profit figure with bank statements and BAS.
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