Boston Chicken Case Essay Example for Free

capital of Massachusetts Chicken Case Essaycapital of Massachusetts Chicken use a franchising strategy that differed from most other franchising companies at the time. Boston Chicken focused its expansion through franchising the bon ton through large regional developers instead than selling store franchises to a large number of small franchisees. In that, an established network of 22 regional franchises that targeted their operations in the 60 largest U.S. metropolitan markets and in order to do so, the franchisee would extradite been an independent experienced businessman with vast financial resources and would be responsible for opening 50 100 stored in the region. Boston Chicken focused on widespread continuous expansion of its operations to become to developed across the board food chain. Scouting for solid estate assured the highest standards for developing properties and was critical 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 direct efficiency, the company locked in low rate 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 line to serving 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 refund of such loans. 2. The accounting policy of reporting the franchise fees from Boston Chickens area developers as revenue seemed most controversial. These franchise fees, which accounted for more than 50% of total revenue, did not represent revenues from operations. Also, the source of most of the ranchise fees came from the financing provided b y Boston Chicken, the franchiser, where the money coming in was the same money that was going out. This overdone earnings of the company. Since the debentures can be converted into shares of common stock, most of the revenue from franchise fees should have 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 ill-judged 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 profitable future. 3. Boston Chicken, the franchiser, reports revenue based on franchise fees (includes royalties, initial franchise development costs, interest income from area developer financing, lease income, software fe es, and other related franchise fees), and company operated stores.The revenue reported on the income statement does not reflect the operating income or losses 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 stake 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 statements, the company gave a false impression on its future prospects of the company, all owing them to more freely raise capital through the issuance of common stock, and inadvertently inflating tock prices.