MONEY REALLY MATTERS

Financial diligence is critical so before you decide to move forward with your investment, you need to delve deeply into the operating financials. You want to see some real profit and loss examples from businesses within the system.

So what are the questions you should be asking?

FINANCIAL FUNDAMENTALS

• What is the bottom-line profit percentage to sales?

• How long on average has it taken a business to break even, and

does this vary by location/size of business?

• What percentage is wages/salaries to sales?

• What percentage is the expense line to sales?

• What percentage is rent to sales?

You need to also understand some lead indicator financials

(i.e. factors that can predict or indicate positive or negative performance in the future):

• What is the average spend per customer/client? Has this

increased or decreased?

• How many new customers/clients has the business attracted? Is this up or down on the previous period?

• If you are considering a retail business, what is the return per square metre of the business and, again, is this number improving?

• Another question for retail franchises: what is the productivity

per hour for staff and has this improved over time?

It is also important to review these businesses at various points in time … look at a start-up as well as an established business because these benchmark ratios will change over time.