What Your CPA Should Actually Do Before You Sign a Franchise Agreement

In this episode of Ownership Essentials, franchise accounting specialist John Mollica breaks down what independent financial due diligence looks like before you commit.

The FDD will tell you to consult a CPA. The franchisor will tell you to consult a CPA. Your franchise consultant will tell you to consult a CPA.

Almost everyone gets that advice. Very few people understand what a CPA should actually be doing with that document.

In this episode of Ownership Essentials, I sat down with John Mollica, co-founder and president of My Franchise CPAs, an accounting firm that works specifically with people evaluating, buying, and operating franchise businesses. John’s firm has been doing this for nearly a decade, and that specialization matters in ways I’ll get to shortly.

The Document Everyone Has and Almost No One Fully Reads

The Franchise Disclosure Document is dense. A typical FDD runs 150 pages or more, written by attorneys to satisfy federal disclosure requirements. Most buyers read the sections that feel most relevant and absorb what the franchisor’s team explains during discovery. 

John’s firm takes a different approach. Before anything else, they strip the financial terms out of the FDD into a single spreadsheet: Item 6, Item 7, Item 19, recurring fees, initial investment ranges, financial performance representations, all pulled together so a buyer can see the full picture in one place instead of hunting across 150 pages. That service has a name at My Franchise CPAs. They call it an FDD Financial Overview, and it’s where paid engagements often begin.

What makes this more than a formatting exercise is pattern recognition. Having reviewed FDDs across so many brands and industries, John and his team can tell a buyer when a royalty rate runs high relative to market norms, when the low-end estimate in Item 7 is genuinely conservative or suspiciously optimistic, and what the footnotes actually say. That last point comes up often enough that it’s worth dwelling on.

The Footnotes Too Many People Skip

John shared an example that stuck with me. A franchise buyer had gotten through the entire discovery process believing that royalties were calculated on net income. They were wrong. The footnotes in Item 6 made clear, as they almost always do, that royalties apply to gross sales. That distinction changes the unit economics of the business meaningfully, and it was sitting in the fine print the entire time.

The same granularity applies to Item 20, which tracks how franchise unit counts have changed over time. John mentioned reviewing an FDD where the system had contracted from roughly ten units down to one. Some buyers would see a number in that section and move on. Someone who knows what healthy unit growth looks like in a franchise system would flag that immediately as something requiring an explanation before proceeding.

These are the details that separate a thorough review from a cursory one.

Building a Pro Forma That’s Actually Yours

I want to be direct about something here, because it comes up with my clients regularly.

Franchisors and franchise consultants, including me, are prohibited from making financial performance claims outside of what’s disclosed in Item 19. That’s a compliance requirement, and it exists for good reasons. It also creates a gap: buyers receive raw FDD data and are essentially told to figure out what it means for their specific situation.

John’s firm fills that gap. Using the revenue and expense information disclosed in Item 19, combined with market-specific data the buyer researches directly (rent in their target market, local labor costs, and similar inputs), My Franchise CPAs builds a working pro forma. This is a year-one and year-two projection built around the buyer’s actual numbers, not a lender’s template or a franchisor’s best-case illustration.

The goal isn’t to manufacture confidence. It’s to surface a real question: does this business, modeled honestly, produce what this household needs it to produce? John described working with a couple evaluating a fitness studio franchise. He took the membership tier data from Item 19, applied realistic ramp-up assumptions, and built a revenue projection from the ground up. That kind of analysis gives a buyer something concrete to stand on when they’re deciding whether to proceed.

When the Numbers Say Stop

The pro forma doesn’t always point forward. John’s most vivid example from our conversation involved an acquisition. A buyer was looking at an existing franchise location listed at $750,000. After running the analysis, John pegged the defensible value closer to $450,000, given the business’s consistent top-line decline. That’s a $300,000 gap. The buyer walked away and is now pursuing a new franchise through their consultant instead.

This is what an independent financial review is actually for. The franchisor has an interest in you buying their franchise. The seller has an interest in you paying their asking price. A CPA working for you has exactly one interest: helping you understand what the numbers say.

John put it plainly during our conversation: nine times out of ten, buyers don’t have the background to work through this on their own, even if they’re financially sophisticated in other contexts. Reading a P&L is different from reading an FDD. Knowing business finance is different from knowing what’s typical across a franchise system.

What Gets Harder to Fix After You Sign

We talked near the end of our conversation about what happens when buyers skip this step. The most costly mistakes aren’t always in the projections. Sometimes they’re structural.

Business entity selection, tax efficiency, licensing requirements, permit compliance: decisions made before opening can create significant problems after the fact. John mentioned cases where buyers structured their business in a way that left real money on the table at tax time, and others where a missing permit triggered a stop-work order mid-operation. Neither outcome is inevitable, and both are far easier to prevent than to correct.

The checklist of things a CPA should address before you sign is longer than most buyers realize. The consequences of gaps in that checklist don’t always show up on day one.

Where to Start

If you’re actively evaluating a franchise and haven’t yet spoken with a CPA who specializes in franchise businesses, that conversation belongs on your list before you sign anything. My Franchise CPAs offers a free initial consultation for people in the discovery phase..

If you’re earlier in the process and still figuring out which franchise might be the right fit, that’s exactly the conversation I have with people every day. Book a time with me at www.newchapter.llc. .