Typically, franchising involves a one-to-many relationship, meaning that there is one franchisor to more than one franchisee. These represent the two primary types of entities involved in this industry. Franchising is designed to expand the footprint of a market of product(s) and/or services currently being offered or provided. The Franchisor sells the right for the franchisee to operate an established business model in the form of limited ownership. The franchisor’s primary “operation” is to grow an existing business run by a separate company.
If one thinks of fast food restaurants, you will note that there are “corporate-owned/operated” businesses and franchised locations. The Franchisor usually provides support, training, marketing, monitoring, some forms of infrastructure (systems, etc.) to the Franchisee. In return the Franchisee pays the Franchisor a buy-in (lump sum) to get started and a percentage of revenues.
The ability to franchise in each state is formal with the Federal Trade Commission requiring annual reporting in the form of a comprehensive Franchise Disclosure Document. Financial statements audited by a licensed CPA are a required component of the FDD.
In a lot of cases there is little or no activity occurring in the first period and limited activity in the first couple years. Most CPA firms have overhead and other considerations that require the minimum fees to be several thousand dollars even when there are no significant transactions having occurred.
My fees are scalable such that the first year audit can be performed at a lower cost to the franchisor, thus lessening the burden of publishing the first FDD and beyond.
I perform financial statement audits that are included in FDDs and also perform compliance audits associated with the contractual agreements between the Franchisor and Franchisee from both perspectives.