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Chapter 2. The Franchise Relationship Mo... > Financial Structure: What Is the Fin...

Financial Structure: What Is the Financial Model of the Franchise Concept?

By understanding the illustrated core of the FRM, the customer, and the SDS, we have gained an understanding of the whole financial structure of the concept. Let’s step back for a moment to gain some perspective. The customer definition provides the basic understanding of revenue. Marshaling the resources to establish the SDS allows you to understand the costs involved in meeting market demand; the SDS defines the costs of acquiring the revenue. The known revenue and known costs bring you directly to a clear understanding of your project’s net revenue.

Once you’ve established them, you can use the costs related to the acquisition of resources, such as a stove or ice cream machine, to develop a balance sheet. Again, you have a unit of analysis issue. This analysis is initially done at the operating unit level. By the same token, you can use the costs of the resources necessary to extract demand to develop an income statement. When the hamburger or ice cream is actually delivered, you also have a price paid for the product as well as costs associated with food and labor—this provides the information for the income statement. Pro forma financial statements allow you to better understand the viability of the franchise system’s business model prior to launch.


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