You’ve finally decided to become a franchise owner! Operating a franchise comes with many advantages, like an established brand name and support from the franchisor. However, it also comes with the responsibility of diligent bookkeeping to stay profitable and compliant. If you’re used to doing the books for an independent business, you may wonder how franchise bookkeeping differs from traditional bookkeeping.
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The Franchisor Provides Your Chart of Accounts
When starting any small business, you must decide how to categorize income and expenses in your books. Franchises make this easy by providing a required chart of accounts to franchisees. This standardized system ensures all locations report financials consistently for the franchisor to analyze. As a franchisee, you must follow this chart of accounts precisely.
Reporting Requirements Are More Rigid
Franchisors will require regular financial reports to analyze performance and ensure that all locations meet brand standards. This means you have less flexibility in when and how you report compared to an independent business. You must submit reports like profit and loss statements on the schedule specified in your franchise agreement.
Fees Must Be Paid on Time
Your franchise agreement will spell out various ongoing fees to be paid to the franchisor, like royalties and advertising fees. As the franchisee, your bookkeeping process must account for these fees and remit payment on time. Late or missed payments could put you in default of your agreement.
Franchisor Audits Help Maintain Consistency
In an independent business, you may never undergo a financial audit. However, franchisors regularly audit franchisees to ensure brand consistency and prevent fraud. Your bookkeeping must be meticulous and well-organized for these reviews. Any discrepancies or inconsistencies in your books versus other franchise locations will raise red flags.
Add Funds Require Separate Accounting
Many franchises collect advertising fees from franchisees that go into a shared ad fund. As a franchisee, part of your bookkeeping process is appropriately accounting for your contributions and expenditures from this shared fund. This requires tracking ad spending separately from general expenses.
Understanding the Franchise Disclosure Document is Key
The franchise disclosure document (FDD) defines how the franchise runs, including bookkeeping requirements. Studying this legal document can save you headaches if you clearly understand the financial procedures and reporting outlined. Consult the FDD anytime a bookkeeping question arises.
Training is Crucial
While independent businesses can figure out DIY bookkeeping and accounting as they go, franchisees must undergo training on required procedures. The franchisor wants franchisees who can “hit the”ground running” with their methods. Take full advantage of the initial and ongoing bookkeeping training offered to manage the books properly from day one.
Purchasing May Be Restricted
To ensure consistency, franchises often require franchisees to purchase supplies from approved vendors only. Your bookkeeping must carefully track purchases to confirm you are buying from vendors on the approved list. Unauthorized supply purchases are grounds for termination of your franchise agreement.
Consult the FranchisFranchisor’snded Software
Since franchises emphasize uniformity, most recommend or require the use of certain accounting software. As a franchisee, only choose bookkeeping software approved by the franchisor. The recommended platform will integrate with your reporting needs and account chart.
While intimidating at first, mastering franchise-specific bookkeeping can help your location thrive as part of a phenomenal brand. If you need help with franchise bookkeeping services, contact a company like Remote Quality Bookkeeping.
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