The Basics of Franchise Accounting

In a nutshell, franchise accounting involves systematically recording, analysing, and reporting financial transactions specific to a franchise operation. It encompasses various aspects, such as income statements, balance sheets, cash flow management, and tax obligations. Effective accounting allows franchise owners to monitor their revenue, expenses, and profitability, clearly showing their financial health and enabling informed business decisions.

Join us as we unravel the complexities of franchise accounting in Australia and equip you with the knowledge to navigate the financial landscape of your franchise business successfully. Get ready to gain a deeper understanding of the essential principles and practices that can drive the growth and profitability of your franchise. Don't miss out on this informative and practical guide!

Let’s Begin With the Benefits

A business in a box is another name for what is more often known as a franchise. It is founded on an established foundation and provides goods or services already tried and tested in the marketplace. In certain circumstances, the franchisor will provide comprehensive guides to assist you.

• via means of preparation, instruction, and planning
• conquer the discomfort of teething
• manage the day-to-day operations of the company
• develop and achieve success

It's similar to going out alone, but you won't be alone.

The longer the company has been in business, the more information it will be required to disclose. The franchisor will have witnessed some franchisees succeed while others fail, and they can share the lessons they learned with you. This will provide you with a streamlined list of key performance indicators (KPIs) to concentrate on when operating the company, simplifying your life.

You will most likely profit from some brand awareness right from the beginning, you may get discounted supplies, and there may be solutions to streamline administrative work available to you.

Factors to Consider When Choosing Franchise Accounting Software

1. Smooth Software Integration

Integrated franchise accounting software packages combine and improve the capabilities of all of your favourite current accounting tools. These systems are designed specifically for franchise businesses. QuickBooks, DocuSign, Authorize.Net, PayPal (the world's most popular web-based payment gateway), and several other applications are compatible with the franchise accounting software system.

2. Smart Franchise Developers

A substantial amount of excellent software is produced by programmers who lack any direct experience in the business for which it is intended. However, it cannot be denied that well-informed developers benefit the business as a whole. Because of this, children learn by playing the "Telephone Game" that crucial details and often even entire messages can be distorted and jumbled in translation.

In light of the preceding, although it is a step in the right way to have franchisors monitor the creation of franchise accounting software systems, this method is not a failsafe technique. Communication barriers are a common issue, and it can be challenging to convince developers who do not have direct experience working on franchise projects of the significance of particular details.

There is a more desirable alternative. The development team is made up of current and former franchise owners who are familiar with your organisation's particular software requirements. They have managed several personnel teams, coordinated multi-level marketing campaigns, supervised franchise-wide finances, and juggled inventory at the executive level.

In addition, they have overseen and managed the operations of multiple franchises. Because of these experiences, we have developed a user-friendly accounting software system for franchises that can serve your brand either as a potent supplementary tool or as an all-in-one solution.

3. Premium Features

The accounting software you choose for your franchise should include all the standard premium features on high-end end-user applications.

Researching three to four similar solutions and taking note of whatever features keep coming up as value propositions are necessary steps to take before auditing any franchise accounting software system. Then, develop a wishlist of premium features that speak to your needs and use that as a basis for your individualised study.

Using this kind of auditing, we can demonstrate how certain software packages combine many beneficial features into a single application. Take, for instance, the software program QuickBooks, widely utilised by franchise businesses. In 2015, it reached a milestone of one million users. When you look at the features, QuickBooks Online brags that you can "Access financial data on the go, anytime, and anywhere." This is one of the main selling points.

They also highlight how easy it is to take in company reports at a glance, run business reports, track spending, sales, and income, automatically sync data across various devices, and make bespoke invoices with only a few clicks of the mouse. This feature summary can be copied and pasted into a new document that is otherwise blank, and we can then use it as a checklist to examine other possible tools.

The programme's value is very discernible in this instance, given that we provide all the functions listed above and even more. In addition, the franchise accounting software system we provide is fully compatible with most software developed by third parties. This means that our solution can improve the functionality of the software tools that you already have.

4. Existing, Breathing, and Changing Accounting Software for Franchises 

Stay away from franchise account software systems considered "dead" and offer no maintenance, upgrades, or continuous development.

Even though the software is a "finished product," the task is never truly completed. The times and technology are always shifting, and the team is continuously hard at work developing new features, expanding software compatibility, and assisting users. As a consequence of this, the software used for franchise accounting is continuously undergoing development.

Select Software That Meets the Unique Needs of Your Franchise

1. Invest Your Time in Things That Truly Matter

Get rid of those tedious spreadsheets so you can focus on the more important matters. When you use software like MYOB, your typical tasks will be simplified and easier to understand, allowing you to complete tasks more rapidly.

2. Good Data Leads to Wise Choices

It shouldn't be a matter of guessing regarding the decisions that affect your company. You'll always be in the loop about what's happening because you can access real-time financial data, whether at your desk or on the road.

3. Receive Assistance When You Most Need It

Everyone should have someone they can turn to for guidance. However, your dedicated account manager is much more than a helpline; they will become familiar with your company on a deep level to provide support tailored to your requirements.

4. Obtain a Lifelong Discount

We feel that one should always be rewarded for their commitment. Consequently, franchise members of certain franchise partners are granted exclusive privileges, such as cost reductions for MYOB software.

There Is In Fact Danger In Franchises

Although the techniques and procedures that make a franchise successful can be a source of confidence, you shouldn't let that cause you to get complacent. There are dangers associated with purchasing a franchise that is not present in the operation of a conventional small business.

• More debt for startups: the upfront franchise fees add a significant amount to the overall costs of your business. The payroll costs associated with franchises are typically higher as well.

• Staffing from the beginning: many sole proprietorships evolve into multi-employee operations as their company expands. The vast majority of franchises will need you to begin operations with a staff of employees, which means you will be responsible for managing human resources and processing payroll.

• Additional operating expenses include the payment of monthly franchise fees as well as payroll. Because of the potential increase in the cost of doing business caused by these costs, you will require additional revenue to achieve financial neutrality. In addition to this, you'll need to be vigilant about managing your cash flow.

• Demanding sales quotas: The key to the success of many franchises is providing items or services at competitively low prices. These high-volume, low-margin business strategies don't leave much wiggle room in the budget for extra spending. If sales begin to decline, your projections for future earnings may need to be revised rapidly.

Franchise Accounting's Objectives

You need to minimise the negative effects of being a franchisee while maximising the positive aspects of the situation. That indicates you'll need plans for things like:

• coping with one's debts
• managing employees
• maintaining control of one's cash flow
• monitoring the most important performance metrics

1. Managing Your Debt

One of the most significant obstacles that small businesses face is debt, and the majority of franchisees begin with a significant amount of debt that comprises the following items:

• A charge for signing up to become part of the franchise network
• A conspicuous retail placement (and refit)
• Wages that must be paid to employees even when they are undergoing training

All of this takes place before you receive any payment. Consequently, franchisees frequently begin their businesses with greater debt than single proprietors.

1. Keeping Up With Your Financial Alternatives

These days, one can choose from a plethora of different financial avenues. It's possible that your franchisor gave it to you, or at the very least, they guaranteed your loan. Be careful to keep in mind the following if you are just beginning start and are considering how to organise your finances:

• have the ability to restructure your debt if better solutions become available.
• review your obligations consistently with a financial advisor to identify potential cost savings.
• possess the sufficient amount of cash flow to make the required debt payments.

Most firms hold debt. You can save significant money if you actively manage that debt to keep your costs as low as possible. This is of the utmost importance in accounting for franchises, where monthly franchise fees and other regular expenses are deducted from your bank account.

2. Create Procedures for Your Repayments

Make sure that loan repayments are factored into your budget, and set aside a certain amount of money for them so you won't be tempted to spend it on anything else. You should set up automatic payments so you don't accidentally forget any of them. In addition to extending the period during which interest is charged, late payments result in additional fees, which can quickly add up.

2. Staff Administration

Because most franchisees operate in businesses that focus on customer service, you may expect to have workers. You will be required to:

• Provide them with training.
• Maintain their sense of drive.
• Plan out their schedules.
• Ensure that they are paid and that you comply with the tax laws.

When you think you've got everything under control, your greatest employee will go for another position, and you'll have to begin from scratch again. Make use of different platforms and different kinds of company software to automate as much of the labour as you can. Take, for instance:

• Payroll software will figure out each employee's pay and taxes, will complete up their tax forms automatically, and will deposit their paychecks directly into their bank accounts.

• The use of scheduling applications makes it possible to generate rosters and send them directly to the mobile devices of all employees, enabling those workers to keep track of the times at which they are expected to report for work.

• The precise amount of time performed will be clocked by time-recording software, which makes it simple to compute pay. You can install it on staff phones, allowing them to use their mobile devices to punch in and out of work.

When you automate these administrative duties, you will have more time to focus on hiring the right people, providing them with training, and ensuring they are happy in their jobs.

3. Keeping Track of Cash Flow

Cash flow is an essential component of any organisation, and most will experience difficulties at some point. There will be periods in which making a debt payment or purchasing merchandise will be challenging. Because payroll and franchise fees are always being taken out of your account, franchise accounting can be one of the most difficult types of accounting to deal with.

Creating a budget is the first step in maintaining a healthy cash flow. You must be aware of your recurrent costs to budget around them successfully. You need to be aware of how the strategy is being carried out from day to day to be able to make decisions as you go along. A statement of cash flow may be of assistance.

• Do we have sufficient funds to cover the franchise costs for this month?
• Are the revenues high enough to cover the monthly loan payments?
• Are you able to cover the salary on Friday?

Keeping track of all of these moving elements might be difficult due to the following reasons:

• The amount of money made will fluctuate from one week to the next.
• Adjustments will be made to employee expenses, particularly if you have some upcoming overtime shifts.
• There will be various additional costs, such as building maintenance.
• You can decide to place an additional order of merchandise to accommodate a busy season.

A cash flow statement is a fine place to start, but using a cash flow dashboard to track all your transactions is your best choice for staying on top of your finances. The astute ones will also show what upcoming revenue and expenses will be to better understand how cash flow will look in the future.

Cash flow dashboards inform you how much money you must spend by combining data from your bank account, point-of-sale system, payroll software, and invoicing software.

4. The Maintenance of Key Performance Indicators

You will know all the important success secrets if you have a reliable franchisor. They will have explained the three, four, or even five factors that set their successful franchisees apart from the others in the industry. These will serve as your key performance indicators, and examples of some of them include the following:

• How many customers are currently in the store
• How long do patrons often have to wait before being attended to?
• What percentage of a specific product do you sell overall?
• How many of your consumers come back regularly?
• How much must be spent on salaries to bring in one dollar of revenue?

Many possible KPIs exist, but a good franchisor will direct your attention to the most important ones. If you get those measures right, you'll know that your chances of success are significantly increased. The management and accounting for franchise businesses might be simplified due to this.

Ask other franchisees in the network or talk with a franchise accountant if your franchisor cannot provide information regarding the key performance indicators (KPIs) that should be used. Having a clear idea of where you should focus your efforts is essential.

1. How to Calculate KPIs

Measuring key performance indicators (KPIs) like customer happiness, employee productivity, and cost of goods sold might seem like a no-brainer. Others might be more difficult to measure or expensive to account for. If your franchisor provided you with the KPIs, they should also have mechanisms for measuring them. If they are unable to assist you, an accountant most likely can.

After you've decided on key performance indicators (KPIs) and established procedures to measure them, you'll need to:

• Establish goals
• Create a list of potential strategies for achieving those goals.
• Establish a timetable for checking in on the project's development.

If the KPIs continue to show an upward trend, your company's outlook should also. You can maintain a tight watch on key performance indicators (KPIs) using an application such as Spotlight, FUTRLI, or Fathom. They will make graphs and charts showing how things are tracking, enabling you to check on how well your company is doing when you have some spare time.

2. The Most Crucial KPI for You

The majority of franchisees provide goods or services at low prices, which implies they require a high volume of sales to turn a profit. As a result, the sales volume is an extremely important consideration for these companies.

It doesn't take long for a decrease in sales to become known when there are recurrent franchise fees and often significant labour expenditures. Consequently, ensure you have sales volume and employee costs readily available. You may incorporate this into the dashboard that tracks your KPIs or extract the data directly from your POS software.

Create a strategy for how you will proceed if your sales decrease. Do not hold off till you are in a lull before acting.

Accounting Setup

Keeping accurate books and records is the cornerstone of the management of a firm.

During the Accounting Setup step, we will install your accounting software and instruct you on how to use it. Before you even begin, trading is when you should do this, according to our findings. This is because you will have significant work to complete as your company develops.

You will be better positioned to comprehend how your business is progressing if you immediately take control of this situation. Together, we can pinpoint areas where there is room for improvement or where you should focus your efforts. The process of complying with Tax and GST will also become less complicated due to this change.

During the phase of setting up the accounting, you will primarily be responsible for the following areas:

1. Bank Accounts

Choosing which bank account and merchant facilities are most suited to meet your requirements is essential.

In addition to this, we suggest opening a second bank account just for your GST and Super contributions. This allows you to set aside sufficient funds to satisfy your tax responsibilities.

2. Accounting Software

The accounting software that you decide to use is a highly essential decision. This will be something that we discuss with you, and then we will set up your membership to Xero, Quickbooks, or MYOB. In addition to that, we will talk about applicable apps and integrate your point of sale system.

Receipt Bank is a great software that many customers find that records your receipts and invoices electronically and can be downloaded for free. We will discuss this with you to see whether or not it is appropriate for the circumstances of your scenario.

In addition to that, create your Chart of Accounts. This lays the groundwork for the accounting and reporting that you will be doing.

3. Payroll

Every firm owner is responsible for ensuring that their employees are paid accurately. In addition to paying employees appropriately, various other accounting standards must be satisfied.

You need to construct the accounting side of your payroll and learn how to comply with the requirements. Both of these tasks are your responsibility. After that, connect your payroll software to your rostering programme.

You are responsible for educating yourself on the fundamentals of reporting and lodging with the ATO and using the Single Touch Payroll system.

4. Keeping Track of Income and Expenses

Keeping track of your income and expenditures is essential to the accounting aspect of running a business. Some of them will instruct you on performing the fundamental tasks and will assist you in comprehending the procedures. You also need to record the initial transactions for the purchase and setup of your business. These transactions must include any expenses that you incurred before the business's official launch.

You should review your monthly numbers, make any necessary adjustments, and prepare your management reports. You must create a BAS and submit it to the Australian Tax Office at the end of each calendar quarter.

5. Forecasts of Both Budgets and Cash Flows

Comparing a client's actual outcomes to those anticipated in their budget every month is something that many customers find useful. This enables them to monitor how well they are doing in relation to their objectives.

You need to construct a cash flow forecast and budget for your company that is grounded in reality. After that, you should import it into the accounting software you use to monitor your progress in relation to the budget.

6. Monitoring Financial Performance

You can generate individualised Management Reports every month to analyse your company's success. This is an important aspect of managing your company that you need to pay attention to.

You can talk about these things once a month and bring attention to any areas that require further focus.

You may also compare your success in terms of financial performance and other key performance indicators to benchmarks as well as other businesses that are part of your franchise group.

Reasons to Hire a Franchise Accountant

Most franchise owners will contract the services of an accountant because of the significant financial commitments involved in purchasing and operating a business. However, if you want to safeguard your financial investment, you shouldn't stop there; instead, look for an accountant with experience in the franchise industry.

It is helpful to have someone on hand who has experience with franchise accounting because certain challenges are exclusive to this field. For instance, a consultant who has experience in franchise accounting will be aware of the following:

• how to approach the issue of franchise fees from a tax point of view.
• ways to manage costs associated with compliance
• what information are you required to submit to the franchisor
• where franchisees almost always make common mistakes

It would be ideal if you could find an accountant who also works for other franchisees in your particular franchise network. They will be quite familiar with your company and will be able to inform you of the following:

• the most significant dangers and difficulties that lie ahead for you
• the primary critical performance metrics of utmost importance
• what it is that successful franchisees do exceptionally effectively

In addition, given the time they've spent working with the company, they'll be able to provide you with ready-made solutions to challenges that franchisees like yours frequently confront.

Franchise Accounting Focuses on Cash Flow and Key Performance Indicators

In most cases, purchasing a franchise will result in ongoing employee expenditures, debt repayment, and franchise fees. Your cash flow will be under constant strain as a result of this.

The key performance indicators (KPIs) of many franchises are predefined. And even if they don't, you can usually find them with the help of other franchisees and specialised accountants by working together.

Monitoring your cash flow and key performance indicators is essential to offer yourself the best chance of success. This holds especially true if the business model upon which your franchise is based emphasises high sales volumes but poor profit margins.

Think about using dashboards to keep track of the essential metrics, and schedule regular meetings with your accountant to discuss performance and develop ideas for making improvements.

Conclusion

In conclusion, understanding the basics of franchise accounting in Australia is crucial for franchisors and franchisees. By grasping the key financial concepts and practices specific to the franchising industry, businesses can effectively manage their financial operations and make informed decisions that drive growth and success.

Whether it's calculating franchise fees, monitoring cash flow, or preparing accurate financial statements, having a solid foundation in franchise accounting is essential. By maintaining clear and transparent financial records, franchisors can ensure compliance with regulatory requirements and build trust with their franchisees.

For franchisees, comprehending franchise accounting enables them to assess the financial health of their business, analyse profitability, and plan for future growth. By keeping track of expenses and revenues and understanding the unique accounting metrics associated with franchising, franchisees can make informed decisions that maximise their bottom line.

With the ever-changing landscape of the franchise industry, it's important to stay updated on accounting practices and regulations. Consulting with accounting professionals who specialise in franchise accounting can provide invaluable insights and guidance.

Now that you have learned about the basics of franchise accounting in Australia, how do you plan to incorporate this knowledge into your franchise business? Share your thoughts and ideas in the comments below!

Content Summary

• Join us as we unravel the complexities of franchise accounting in Australia and equip you with the knowledge to navigate the financial landscape of your franchise business successfully.
• Get ready to gain a deeper understanding of the essential principles and practices that can drive the growth and profitability of your franchise.
• Communication barriers are a common issue, and it can be challenging to convince developers who do not have direct experience working on franchise projects of the significance of particular details.
• The development team is made up of current and former franchise owners who are familiar with your organisation's particular software requirements.
• Because of these experiences, we have developed a user-friendly accounting software system for franchises that can serve your brand either as a potent supplementary tool or as an all-in-one solution.
• The accounting software you choose for your franchise should include all the standard premium features on high-end end-user applications.
• In addition, the franchise accounting software system we provide is fully compatible with most software developed by third parties.
• There are dangers associated with purchasing a franchise that is not present in the operation of a conventional small business.
• More debt for startups: the upfront franchise fees add a significant amount to the overall costs of your business.
• In addition to this, you'll need to be vigilant about managing your cash flow.
• Creating a budget is the first step in maintaining a healthy cash flow.
• A statement of cash flow may be of assistance.
• Ask other franchisees in the network or talk with a franchise accountant if your franchisor cannot provide information regarding the key performance indicators (KPIs) that should be used.
• After you've decided on key performance indicators (KPIs) and established procedures to measure them, you'll need to:Establish goalsCreate a list of potential strategies for achieving those goals.
• Consequently, ensure you have sales volume and employee costs readily available.
• During the Accounting Setup step, we will install your accounting software and instruct you on how to use it.
• You need to construct the accounting side of your payroll and learn how to comply with the requirements.
• Keeping track of your income and expenditures is essential to the accounting aspect of running a business.
• It would be ideal if you could find an accountant who also works for other franchisees in your particular franchise network.
• Monitoring your cash flow and key performance indicators is essential to offer yourself the best chance of success.
• In conclusion, understanding the basics of franchise accounting in Australia is crucial for franchisors and franchisees.
• With the ever-changing landscape of the franchise industry, it's important to stay updated on accounting practices and regulations.