Provide financial statements for at least last three years, plus a current dated statement (no older than 90 days) including balance sheets, profit & loss statements, and a reconciliation of net worth. Aging of accounts payable and accounts receivables should be included.

Proposed Business:

Provide a pro-forma balance sheet reflecting sources and uses of both equity and borrowed funds.

Projections:

Provide a projection of future operations for at least one year or until positive cash flow can be shown. Include earnings, expenses, and reasoning for these estimates. The projections should be in profit & loss format. Explain assumptions used if different from trend or industry standards and support your projected figures with clear, documented explanations.

Collateral:

Provide a list assets to be held as collateral. Few financial institutions will provide non-collateral based business loans. All business loans should have at least two identifiable sources of repayment. The first source is ordinarily cash flow generated from profitable operations of business. The second source is usually collateral pledged to secure business loan.

Depending on your particular circumstance you may need to provide one or more of following documents:

Lease, Franchise Agreement, Purchase Agreement, Letters of Intent, Articles of Incorporation, Plans, Copies of Licenses, Letters of Reference, Contracts or Partnership Agreement.

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Training: The disclosure document will explain franchisor's training and assistance program. Make sure you understand level of training offered.

Advertising: You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used. The disclosure document provides information on advertising costs.

Current and Former Franchisees: The disclosure document provides important information about current and former franchisees. Determine how many franchises are currently operating. A large number of franchisees in your area may mean increased competition. Pay attention to number of terminated franchisees. A large number of terminated, cancelled, or non-renewed franchises may indicate problems.

Earnings Potential: You may want to know how much money you can make if you invest in a particular franchise system. Be careful as earnings projections can be misleading. Insist upon written substantiation for any earnings projections or suggestions about your potential income or sales.

Financial History: The disclosure document provides you with important information about company's financial status, including audited financial statements. Be aware that investing in a financially unstable franchisor is a significant risk; company may go out of business or into bankruptcy after you have invested your money.

Hire a lawyer or an accountant to review franchisor's financial statements. Do not attempt to extract this important information from disclosure document unless you have considerable background in these matters. Your lawyer or accountant can help you understand information.

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