Expert Audits of Franchisors
When it comes to auditing a company that is selling business franchises, there are very specific regulations that must met. The Federal Trade Commission, or FTC, plans and develops these filing requirements for franchisors and they are not by any means optional. Each year the franchisor must file a Franchise Disclosure Document (FDD) and an audit financial statement of the franchisor must be included in the FDD. Depending on the circumstances, financial statements can be either audited or unaudited, and the circumstances can usually be determined by answering questions similar to these:
- What happens if I formed a company, but I never did anything to capitalize it?
- My company has been organized for a number of years, but I am only now selling franchises. Sales are collected under the same company that has been in existence all this time. What do I do now?
- I own a start-up company that has regular operating expenses, but I have not yet sold a franchise. What do I do?
- What if I have never had any formal financial statements prepared for my company aside from annual tax return preparation?
- I am now beginning to sell franchises in my company, but it was audited in prior years before sales took place. What now?
How We Can Help
Here, at Strategic Direction, Inc., we know exactly how to handle audits for companies that are selling business franchises. Using a progressive, professional approach we can shed light on some of your most pressing questions. During the initial/first audit you may be concerned about a variety of things, but remember that we are on your side and we can help you gather the necessary information. Depending on a variety of factors, they will require one of the following:
- An opening balance sheet that is unaudited; or
- A year-end balance sheet that has been audited; or
- A complete set of audited financial reports including a balance sheet, an income statement and a statement of cash flows. Footnotes that substantiate financial statements are also required.
The category that you may fall under is circumstantial and can be influenced by the way your company has been organized, the stage of development that your business is currently in, and the location of the business.
We Can Help Franchisors Realize FTC and State Regulations
In addition to performing the audit of your financial statements, we can also help franchisors identify other FTC and state regulations that may be an issue, or hinder them going forward. There is in existence what is known as “registration states.” They have their own set of requirements that may not be consistent with the federal requirements mandated by the FTC. Not all states in the country fall under this category, but a good number of them do. If you do business in a state where the state does not have its own regulations for franchisors, default to the Federal Trade Commission requirements. We can help you determine what your state requirements are and what needs to be done in order to fulfill them.
For franchisor audit questions, call us. We can be reached at (818) 937-0888.