1. all startup costs related to the new business, 2.

Including sufficient working capital to cover initial marketing plans and operating
losses until the projected breakeven point for the business.

? Market potential of the products and services, the competition, site locations, price recommendations, customer promotion/marketing/advertising, ? Site Selection Criteria Where are you going to locate the franchise and why? What are the basic demographics associated with each site selection including: sex, income, marital status, and education. What are the psychographics or lifestyles of the customers in that area
? Franchisor's Policies

The franchisor should develop policies to regulate the activities of the franchisor organization and also suggests policies to help regulate the operations of the franchisee organization. These policies should include the salary and wage structures of individuals involved. Additionally, the franchisor should explain the recruiting techniques, job descriptions and performance evaluations which will be used in the franchisor headquarter organization, as well as those recommended for the franchisee organization. The wage and salary structure should be developed including all benefits and incentives which may be provided for each organization. Additionally, internal policies such as sales, employee grievances, general policies, and financial controls should be developed for both organizations. Also, external policies such as credit, checks, layaways, returns, and general external policies dealing with the customer should be developed for both the franchisor and franchisee operations.
the franchisor needs to develop and keep two sets of financial records: (1) franchisor financial records, and (2) franchisee financial start-up records.

The franchisor records may be broken into the following sections: start-up or turnkey costs, funds available, equity available and investment cash, pro forma income statement, pro forma balance sheets, pro forma cash flow statements, breakeven analysis, ratio analysis, and provisions for taxation. These records need to be developed for both the franchisor's system as well as the individual franchisee unit system.

? Initial franchisee fee ? Royalty fees- weekly/ monthly-% ? Advertising fees- if any

Start-up or Turnkey Costs The franchisor should list down all start-up or turnkey costs required to actually start the franchising system. Many franchisors believe that all you have to do is say franchising and you go out and sell franchises to friends, relatives, or neighbors. This is not true. Franchising is regulated by the U.S. government through the Federal Trade Commission and certain regulatory requirements require financial outlays even before franchising is started. Part of the start-up costs for franchising would be the legal costs which include the development of the Uniform Franchising Offering Circular (UFOC) and the franchise agreement or contract. These legal costs have been known to be anywhere from $10,000 to $60,000. In addition, other start-up costs may include separate land and building, as well as staff, before beginning the franchising process. It is quite often that the franchisor will bring aboard someone specifically to direct the sales component of the franchising system as well as someone to direct the development of the operation system for the franchising program. Pro Forma Income Statements The major accounting records kept by a franchisor and a franchisee at the very least would include: (1) the income statement (profit and loss statement) (2) the balance sheet (3) cash flow statement These three financial statements provide valuable information for the franchisor to make the correct financial decisions concerning the initiation, growth, or expansion of the franchise system.

Income Statement The income statement (profit and loss statement) is simply a record of the revenues and expenses developed by the business in a given time period, generally one year. The profit is shown on the income statement through the identification of sales from which expenses are subtracted leaving the profit. The income statement is usually prepared on a monthly, quarterly, or yearly basis and indicates the profit/loss relationship resulting from the sales and expenses incurred by the business. Balance Sheet The balance sheet is an accounting statement which is a "snapshot" of the financial condition of the franchise business at a specific period of time. This financial statement relies on the basic accounting equation and is often called a "statement of financial position of the business." The accounting equation is: Assets = Liabilities + Owners Equity The balance sheet differentiates between money used by the franchisor for a short period of time -- less than one year (current assets), and money used for longer periods of time -- more than one year (fixed assets). The balance sheet will also indicate the different between the monies received from creditors or loans (liabilities or debts) and funds put into the business by the owners (owner's equity, investment, or retained earnings). Cash Flow Budget Statement Probably one of the most useful financial statements used by franchisors or franchisees is the cash flow budget statement which indicates the flow of money through the business. The cash flow statement is generally developed on a monthly basis and depicts the business over a period of time on a monthly basis generally from one to five years. The monthly cash flow statement indicates all cash received as revenues and cash expended as expenditures. The net total is the cash flow or "profits" of the business during that time period. The cash flow statement (pro forma statement) anticipates the short falls of money during specific seasons or cycles of the business. The cash flow statement allows the franchisor to see when funds will be short or when there may be an excess of funds. Break-even Analysis, Ratio Analysis and Taxes The break-even analysis refers to that point in the franchise business when revenues (income) exactly equal expenses (costs of doing business). This financial position is often expressed in mathematical equations or in line graphs with separate lines representing variable costs, fixed costs, and total revenues of the firm. At the point

of the intersection of the total costs and revenue lines, the business is neither making nor losing money and is referred to as the break-even point. The ratio analysis is a method of determining the financial strengths or weaknesses of the franchise business. Ratios may be used by the franchisor from one year to the next to determine if business is growing or failing. Financial ratios may also be used to compare one business against another and ratios are often used by franchisors to compare one franchisee with another franchisee. The franchisor should also look at provisions for taxes which must be paid. These taxes should include federal, state, social security, workman's compensation, sales taxes, business taxes, property taxes, and employer related taxes. All businesses need to work and adhere to the taxing liabilities in their state and nation.

The legal obligations of a franchisor before starting a franchise include the development of a Uniform Franchise Offering Circular (UFOC) as well as a franchise contract or agreement. The franchise contract or agreement generally lasts from ten to twenty years in most cases, although some may be for as little as one year and some are for perpetuity. The franchise agreement is designed to explain all the contractual relationships between the franchisor and franchisee including exclusive territory, fees, royalties, training, obligations of franchisor and obligations of franchisee. In addition, an important section concerning terminations and non renewals is also contained in both the UFOC and franchise agreement.