Boston Chicken Case Essay Example for Free

capital of Massachusetts Chicken Case EssayBoston Chicken utilise a franchising strategy that differed from close to another(prenominal) franchising companies at the time. Boston Chicken focused its expansion through franchising the company through large regional developers rather than selling store franchises to a large number of small franchisees. In that, an established meshwork of 22 regional franchises that targeted their trading trading operations in the 60 largest U.S. metropolitan markets and in order to do so, the franchisee would carry been an independent experienced businessman with vast pecuniary resources and would be responsible for opening 50 deoxycytidine monophosphate stored in the region. Boston Chicken focused on widespread continuous expansion of its operations to operate to developed across the board fare chain. Scouting for real estate assured the highest standards for developing properties and was exact to the companys future success.To assist in future growth of the franchises, Boston Chicken implemented a communications infrastructure, which provided a supporting link for communication between its networks of stores. In addition in efforts to improve operating(a) efficiency, the company locked in low rates from its suppliers and developed flagship stores, which did most of the initial food preparation which inadvertently reduced employee training costs. Many of these regional developers were given a revolving credit situation to help support expansion.This type of financing came with credit risk while the franchises average revenue from operations were not sufficient enough to cover the expenses which raises doubt for the repayment of such loans. 2. The accounting policy of coverage the franchise fees from Boston Chickens commonwealth developers as revenue seemed most controversial. These franchise fees, which accounted for more(prenominal) than 50% of total revenue, did not represent revenues from operations. Als o, the source of most of the ranchise fees came from the financing provided by Boston Chicken, the franchiser, where the currency coming in was the same money that was going out. This overstated earnings of the company. Since the debentures can be converted into shares of common stock, most of the revenue from franchise fees should arrive been deferred. Reporting revenues that included these franchise fees his the fact the most of the franchised stores were operating at a loss, which provided a false impression to investors.While Boston Chicken, the franchiser reported a net income from operations of $24,611 in 1994, if they excluded the income provided by franchise fees, they company-operated stores would have been operating at a loss, which would have been a more accurate picture for the companys operations and its question of having a productive future. 3. Boston Chicken, the franchiser, reports revenue based on franchise fees (includes royalties, initial franchise developmen t costs, interest income from area developer financing, lease income, software fees, and other related franchise fees), and company operated stores.The revenue reported on the income program line does not reflect the operating income or losings generated by the area developers, with most of these area developers operating at a loss. Since the franchiser provides financing to the area developers, it seems that consolidation of the financial statements would provide vital information to the users of the financial statements especially since the repayment of loans relies heavily on the profitability of the franchisees.Basically, Boston Chicken was not reporting the results of operations from its area developers because Boston Chicken did not have an equity position in these firms rather their imperil in these franchises was reported as debt financing. In doing so, Boston Chicken did not have to report the losses that were incurred in these operations. By manipulating the financial st atements, the company gave a false impression on its future prospects of the company, allowing them to more freely raise capital through the issuance of common stock, and inadvertently inflating tock prices.