It is July 15, 20X4, and you, CPA, have just met with Richard and Nancy Nickerson who are seeking business advice. Richard is an engineering professor at the local university and Nancy is a substitute teacher. Nancy has always wanted to run her own business and has approached Sassy Shoes Ltd. (Sassy) to investigate the possibility of obtaining a Sassy franchise.

The Nickersons advised you that they have no prior business experience and that they need guidance. The only thing they know for sure is that they plan to incorporate the new business. A friend, who is a CPA, has explained the tax implications of a corporate structure. They are confident in her advice and do not need you to advise them on any tax matters.

They provided you with extracts of the draft franchise agreement with Sassy
(Appendix I) and a five-year earnings projection prepared by Sassy (Appendix II). They also met with two other Sassy franchisees to gain some further insight and provide you with notes on their meetings as well as other information in Appendix III.

Richard’s current salary is $125,000 a year; Nancy has been earning $20,000 a year from part-time teaching. They are concerned that they will not be able to replace Nancy’s earnings with income from Sassy.

Nancy has also considered starting an independent shoe store as opposed to the franchise. She has included some information on this in Appendix IV.

Nancy and Richard have come to you for your advice. Before you can do that, you need to:

1. Identify the three (3) options that they are considering (doing nothing is an option that needed to be assessed)
2. Develop a specific framework by which to analyze each of these option.

Answer rating: 100% (QA)

Opening an independent shoe store imposes high risk on the part of Nancy and Richard Given that both ... View the full answer