Franchise New Zealand - Year 30 Issue 03 – Spring 2021

Page 64

Buying a franchise: finance STIHL SHOP is a nationwide network of locally owned stores offering a wide range of high quality garden equipment, supported by fully equipped service workshops.




• Join a network of retailers committed to customer service excellence • Be supported by a team of people dedicated to your success

Philip Morrison explains what financial reports can tell you about the business you’re buying

Opportunities are available for new stores in locations across New Zealand. For more information on the STIHL SHOP Network visit Own-a-store

• Reap the rewards of a well-established, profitable business model


eople buy a business for many reasons: wanting to work for themselves rather than someone else; provide employment for the family; live in an area they choose; enjoy a different lifestyle; comply with residency requirements or any one of a hundred different reasons. Ultimately, though, everyone wants to make enough money to support the family, pay the bills at home, put something away for retirement and have an asset they can build up and sell when the time comes or pass on to a family member. But one of the biggest problems facing anyone buying a business is getting their head around the numbers. That’s true for many people who have business experience, so it’s an even bigger hurdle for newcomers. No matter what your background, though, it’s worth taking the time to read the financial reports and understand what they actually mean before you make your mind up about any opportunity. In fact, it’s essential to making an informed decision, especially when it comes to determining business resilience in the Covid environment. And it doesn’t end there. The financial reports generated by your accountant and accounting software can help you evaluate how your business is doing, what it needs to grow and how you can make it perform even better. Learn to understand the numbers and you can build a better business. In this article, we’ll talk about three key financial reports and what they can tell you about the business you are hoping to buy – or already own. 1. Profit & Loss Report 2. Balance Sheet 3. Cashflow Report. It’s important to point out that this article won’t replace the need for you to get professional advice from a franchise-experienced accountant, but should help you to understand that advice when you get it.

How much money will the business make? Franchises available now. Do you want to earn $100,000 - $300,000 per year? The amount will depend on your efforts. Have you been thinking of a career change or owning your own business? Are you tired of making money for your boss instead of yourself? We are offering the right candidates the opportunity to invest in a turnkey franchise business focusing on the huge demand for home building inspections. We provide complete training and qualification along with uniform, equipment, systems, marketing support and insurance. No formal qualifications or experience are required to join. Although certification is not yet mandatory in New Zealand all our inspectors will be trained and fully qualified to the same standard as the certified inspectors operating in USA & Canada.

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From a financial point of view, the first thing any business buyer wants to know is: ‘How much money is the business making, or could it make?’ The answer can be found in the first of our three reports – the Profit & Loss. This report shows the sales revenue of the business, less the costs of providing the products or services the business sells, and less the overheads of operating the business. It then calculates the profit (or loss) of the business – the bottom line. The Profit & Loss report for a typical franchised business might look like the table on the right. Of course, if the business is an existing franchise with a trading history, the figures shown will be actual sales achieved and costs incurred, so you can see how the current owner has been operating the business and compare them to indicative figures from the franchisor. For example, is the current franchisee spending a higher or lower percentage of revenue on rent or staff compared to others in the group? Any significant differences may point to areas for improvement. On the other hand, if the franchise is a new opportunity, the figures will be forecasts which may or may not be achieved. In general, franchisors are pretty good at forecasting costs based on their experience of other outlets. Where you will want to reassure yourself is in the sales area. What are the predicted figures based on and what are other franchised outlets in similar locations or territories achieving?

What to look for Test each income and expense line for reasonableness. Compare each of the income and expense lines against what you would expect from this


Franchise New Zealand

Spring 2021

Year 30 Issue 03