Buying a Franchise? – 4 Key Financial Considerations

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I currently have two customers that are at different stages in buying a Franchise. They have asked me for my opinion on the purchasing and financing of the businesses. One customer is buying a Franchise that has been in operation for almost two years, so they’re purchasing from the Franchisee. The second customer is buying the Franchise from the Franchisor. This involves determining the location, rental agreement, leasehold improvements, purchasing equipment, computers, software, hiring etc., before the doors are even opened. Despite the differences there are numerous issues in common that they need to consider. Buying a Franchise? Then read on to see these 4 key financial considerations.

1. Foreign Exchange Rates

Both Franchisors’ head offices are based in the United States. Purchasing the equipment must be made in the United States and some monthly fees are also in U.S. Funds. Right now this involves a 35% exchange rate. Unless you’re a McDonalds or Tim Hortons Franchise there is not a lot of profit margin to absorb that type of exchange rate.

2. Existing Financial Statements

Current financial statements for these established businesses don’t make sense. The statements for the first year are drafts. No final statements for the year have been supplied and no Notice of Assessment is available. It appears once the current owners determined they wanted to sell the business, income increased and wages decreased. And the owners don’t work in the business. Certain necessary monthly expenses are not appearing on the interim Profit & Loss statement. The Balance Sheet only provides more unanswered questions. You may not be a numbers person but you will need to know what the amounts represent, and whether they are indicative of the margins the Franchisor told you to expect. Also understand as a new Franchisee how the Franchisor determined the great profit margins they are selling you on.

3. Inflationary Costs

Negotiations for the new Franchisee started months ago, and budgets were established at that time. Now the Franchisor has determined they want a face-lift or upgrade for all their Franchise locations, which has created an almost 10% increase over the original budgeted amount. My customer has too much invested now to bow out, but at the same time doesn’t know if they have enough financing in place. I have not read the Franchise agreement for this company so I can’t express an opinion on whether this was included.

4. Exclusive Negotiations

Establishing an exclusive negotiating relationship is important. When purchasing a business a lot of time and expense is involved. Make sure in your offer that it states that the Seller is dealing with you only as a potential Purchaser, for a specific period of time. There is nothing worse than having the carpet pulled out from under you when you’re told somebody came in with a better offer, and it’s SOLD!

I’ve dealt with numerous Franchisees over the years in both a consulting and accounting position. Purchasing a Franchise requires time and due diligence. The most recent Franchise agreement I read was 132 pages. I have no legal experience or training, and always recommend a good lawyer. I review the Franchise agreements from financial, timing and other perspectives.

Hire the right people to assist you with your due diligence at the very beginning of your journey. You might not always like the answers but those answers can save you time, money and stress; now and in the future.

If you’ve had a terrible Franchise purchase experience I would like to hear your story. It could possibly help others before they are in too deep to get out. Just click the contact tab at the bottom of the screen if you are reading this post on the website. Or, you can leave your information in the form of a comment right here on the site.

Until next time,

Maureen

Career Focus – Contacting Service Canada, One Way or Another

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I recently had to contact Service Canada about a Career Focus grant one of my customers wanted to apply for. Since there was no telephone number on the online application to call regarding questions and clarification on some questions I had, I searched online for a number for Career Focus. No number was listed, but the website said I could get assistance at my local Service Canada storefront location. Now considering the government wants to eliminate cheques to us by only using direct deposit, email us for tax follow-up and allow us to search for our personal and business history with them online, the concept of traveling for information seems pretty old school to me. But I packed up my documentation and questions and drove to my closest Service Canada location. Continue reading

CRA Taxes – Know Your Rights

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We’ve filed a large number of personal tax returns in the last few months, and customers for the most part have received their Notices of Assessments. But something else could be coming in one of those brown envelopes in the next few weeks – a request from the CRA for documentation or additional information. So whether the demand relates to personal or business taxes – know your rights.

Usually at this time of year Canada Revenue Agency (CRA) is looking for receipts to substantiate deductions and credits. The most common are: Continue reading

Tenant & Landlord Rent Receipts – What you Need to Know

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I covered this topic briefly a few years ago but all through this past tax season numerous questions and situations continued to arise as to what is acceptable and what to do if audited by the Canada Revenue Agency (CRA) when it comes to tenant and landlord rent receipts. Here is some information on what you need to know and what you will need to supply if requested.

Since the credit varies by province I will address what the CRA across Canada requires and then for the province of Ontario only. Continue reading

Lying to Revenue Canada about Foreign Property or Investments?

Revenue Canada and Foreign InvestmentWhether you’re preparing your personal tax return for 2014, or having a tax professional do it for you, there’s a possibility you might be lying to Canada Revenue Agency (CRA). It’s so easy to skip, or say ‘No’ to the question on the information page – Did taxpayer own foreign property at any time in 2014 with a total cost of more than CAN $100,000? Foreign property is not limited to real property such a condo in Florida that you use for personal and rental purposes.

Specified Foreign Property (SFP) includes: Continue reading

3 Questions to Ask a Prospective or Current Bookkeeping Provider

bookkeeping expert NewmarketThis is the time of year when many small and medium size business owners decide they need to get a better handle on their bookkeeping. Perhaps you want to get your 2014 bookkeeping up to date and you don’t want to do it yourself, or you want to start 2015 with a professional taking care of your bookkeeping needs so you can focus on your business. As you move forward into the New Year, here are 3 questions to ask a prospective or current bookkeeping provider:

1.  Do you offer fixed price invoicing?

Fixed pricing is an agreement between you and your provider which details what and when you the customer, will supply your provider with information. It also details what the service provider will do with that information. Whether it’s: Continue reading

3 Problematic Responses to Probing Bookkeeping Questions

bookkeeper NewmarketIn the last few weeks I’ve had an unusually large number of inquiries about hiring us for our accounting, bookkeeping and tax services. And as much as business owners need to ask numerous questions (which I strongly encourage), I also have a responsibility to ask numerous, sometimes probing questions. This ensures that I can help them make informed decisions and give them a sense of direction if something is not correct. Here are 3 recent questions that I asked and the problematic responses. P = Problematic. Continue reading

Tax Audit from Hell? – Part 2

bookkeeper NewmarketA couple of weeks ago I thought this would be part two of a three part series, even though it was originally planned for two. But thankfully it appears we’re on the final leg of this very long and stressful journey. Let me take you back as to why this has been the tax audit from Hell.

In my previous blog, I finished with the auditor’s request for a 2011 personal breakdown of expenses and income. And, the income wasn’t just related to T4s and Child Tax Benefits. It related to every deposit made to all of their bank and investments accounts along with that of their children for all of 2011. The auditor wanted closing balances of all their accounts at 2010 and opening balances for 2012 which included but wasn’t limited to: Continue reading

Are you Prepared for an Audit from Hell? – Part ONE

bookkeeper NewmarketIn early May 2014 I received a call from a long-time client of mine. They just received a call from Canada Revenue Agency (CRA) saying they were being audited for the year 2011. My client is sharp. He didn’t panic or get angry, but simply asked “how do I know who you really are based on a telephone call?” And, “I want your request in a letter before I do anything further”. My client also contacted their CA as they weren’t sure who was to do what, and what was to happen next. Little did we know this would become the Audit from Hell for both my clients and me. Continue reading

5 Tips & Tricks for QuickBooks Online (QBO)

QuickBooks Online Pro Advisor NewmarketIn the past month I’ve spent numerous hours training new and transitioning clients in QuickBooks desktop and QBO. While some are new to either version, I’ve found those transitioning from the desktop version to the online version experiencing a bit of a culture shock. To ease the transitioning hiccups, here are 5 tips and tricks for QBO to make the entering and retrieving of information go a little smoother.

1. In order for you to allocate the GST/HST in QBO you must first set-up Sales Tax. You do this by selecting the Sales Tax tab from the menu bar and follow the on screen guidelines. QBO then automatically adds two default accounts; GST/HST Payable and GST/HST Suspense. You cannot allocate a payment amount directly to the GST/HST Payable account. But, you can allocate it to the GST/HST Suspense account. If you can’t easily relate to the word Suspense you can rename it to something that will be more familiar to you i.e. Clearing. Continue reading