Financial analysis is the heartbeat of a business.  The franchisor needs to be aware of the financial fees paid by a franchisee including:  the franchise fee, royalty fees, advertising fees, training fees, lease fees and other fees.  When the franchisee is making profits then the franchisor makes profits.

The franchisor needs to develop the balance sheet, income statement and cash budget statement to properly outline and plan the financial management of the franchising organization. In addition, the franchisor should develop a forecasted balance sheet, income statement and cash budget statement for the franchisee. This information will provide the franchisor an understanding of the financial conditions of both the franchisor and franchisee operations.

Financial ratio analysis will help the franchisor understand the financial strength, as well as the management efficiency, of the franchise organization. Ratios are used primarily for comparison purposes either with other businesses, with industry norms, or with the same business over a period of time. Ratio analysis is very appropriate for comparing franchisee units.

Break-even analysis is important for the franchisor to understand when the initial investment may be regained by the franchisor and/or franchisee. The break-even analysis will also show when profits may be received by the franchisor and provides a picture or analysis for when profits may be developed.