Behind the Scenes: An Accountant’s Role in the Validation Process

Oh, if these walls could talk…What does it really look like when a prospective franchisee comes to his or her accountant, still reeling with excitement about a prospective brand? I sat down with Tommy Lee, CPA and Partner with the Atlanta-based firm of Habif, Arogeti & Wynne, LLP, to learn more about the conversation that transpires between recruitment and signing.

Sharon Powills: Why do prospective franchisees see a CPA during their validation process?

Tommy Lee: Prospective clients normally come to us after the franchisor pitch and sometimes after they have been presented with sales projections and cap ex budgets. We start walking through the financials line by line to make sure that we both understand the characteristics of line items as well as the variability that may exist within them.

The brand new franchisee usually comes to us with big plans. I try to get them focused on the business vs the pitch. I also try to get them focused on evaluating the first location vs the 50th. We discuss the economics, structure and compliance issues that come along with being a business owner. We then try to connect them with the legal professionals that can help us button up the deal.

SP: What are some ground zero questions you ask potential franchisees?

TL: There are three types of new franchisees that normally walk into our office. One: They see a concept in their everyday life and want to be part of it. Two: They are approached by a rep at a tradeshow. Three: They have a friend/colleague who is a successful franchisee. So my approach, despite the scenario, is to start by taking the “emotional stock” out of their logic and get them to dig deeper into the operations and investment of the endeavor.

I question their research: what they’ve done, what they know about the business and why they think they’re going to be successful. A prospective franchisee can get sucked up in the hype provided by the franchisor’s rep. I try to focus the conversation on what is going to make them a successful business owner and ultimately a successful franchisee. I get them thinking honestly about the specific franchise’s growth potential, competition and product maturity.

SP: What are some ground zero pieces of advice you would give any prospective franchisee?

TL: Number one: Try to find someone that can help mentor you with the specific franchise system. Two: Focus on the business and how you can make it successful one location at a time. Before you sign make sure that you are willing to pour blood, sweat and tears into this franchise, because that’s what it is going to take to be successful.