Buying an Existing US Franchise: Verify the Seller’s Accounts

Buying an existing franchise gives you something a new outlet cannot offer: a trading history. But a seller’s profit summary is not proof of what you will earn. Within the US franchise community, resale buyers need to establish whether the outlet’s reported income is accurate, repeatable and available to a new owner. Start with the underlying records, not the asking price.

1. Define the business behind the numbers

Before assessing profitability, confirm exactly what the seller is offering. Are you buying selected business assets or ownership of the company that operates the outlet? Does the sale include equipment, stock, customer contracts and outstanding customer obligations? The structure affects which assets and liabilities you acquire and needs legal and tax review.

Check that the accounts cover the precise outlet you intend to buy. A seller operating several locations may present combined figures that conceal a weak site or allocate shared costs unevenly.

Request a consistent set of records, ideally covering several complete financial years and the current year to date:

• Profit and loss statements and balance sheets.
• Business tax returns and relevant sales tax filings.
• Bank statements and payment processor statements.
• Point-of-sale reports, including refunds and discounts.
• Payroll records, supplier invoices and royalty statements.
• Details of outstanding debts, customer deposits and prepaid services.

Use a confidentiality agreement and secure document sharing where appropriate. Ask for personal customer and employee information to be removed where it is unnecessary for the review.

2. Reconcile sales rather than accepting totals

Ask your accountant to trace reported sales through separate records. Point-of-sale totals, royalty reports, tax filings and bank receipts should tell a coherent story, although they will not always match exactly.

For example, card processors may deduct fees before depositing money. Sales tax collected is not the same as sales revenue. Gift cards, deposits, refunds and delivery platform settlements can create timing differences. Require a written explanation and supporting records for material discrepancies.

Compare monthly results, not just annual totals. A strong year may disguise a recent decline, a temporary competitor closure or a large contract that will not continue after the sale. Identify unusual promotions and establish whether discounts generated profitable repeat business or merely inflated turnover.

Ask the seller to separate revenue by product, service or customer category where records allow. An outlet dependent on a handful of commercial accounts needs different scrutiny from one with many small transactions. Confirm whether important customer agreements can transfer and whether customers have any right to cancel following a change of ownership.

Do not treat cash sales that cannot be substantiated as a sound basis for your purchase price.

3. Rebuild profit for your ownership

Sellers sometimes present adjusted profit that adds back expenses they say a buyer will not incur. Some adjustments may be reasonable, but each needs evidence.

For every proposed adjustment, record the amount, the original accounting entry, the explanation and whether the cost will genuinely disappear. An expense labelled ‘one-off’ may recur in another form. Repairs, recruitment and equipment replacement are not necessarily exceptional simply because their timing varies.

Owner remuneration deserves particular attention. If the seller works full-time but removes their pay from the profit calculation, allow for the cost of replacing that work. Even if you plan to perform it yourself, distinguish payment for your labour from the return on your investment.

Also check whether your costs will differ from the seller’s. Obtain confirmation of the franchise terms and charges that would apply to you rather than assuming historic costs will continue. Review staffing requirements, insurance quotations and any changes to occupancy costs.

Finally, separate accounting profit from available cash. Loan repayments, stock purchases and capital expenditure can reduce cash without appearing in the profit calculation in the same way. Model a weaker trading period before deciding what borrowing the outlet can support.

4. Connect the accounts to disclosure and completion

The Federal Trade Commission’s Franchise Rule governs covered franchise sales and requires a Franchise Disclosure Document, generally at least 14 calendar days before a buyer signs a binding agreement with, or pays, the franchisor or its affiliate.

A sale by an existing franchisee can be exempt from the federal disclosure requirement where it is not effected by or through the franchisor. Franchisor approval alone does not necessarily remove that exemption. Have a franchise lawyer establish how the rule applies to your transaction; do not assume every resale carries identical disclosure rights. State franchise registration, disclosure and relationship laws may also apply.

Make satisfactory financial verification and necessary approvals conditions of the purchase agreement. Agree how stock, outstanding customer obligations and other adjustments will be measured at completion, and obtain updated trading figures before completing.

Practical takeaway: Pay for verified, sustainable earnings—not an unsupported profit summary. Reconcile the records, challenge adjustments and calculate the cash the outlet could produce under your ownership.