Franchise companies excel at providing franchisees with operations manuals and marketing materials. But many franchisees are on their own when it comes to bookkeeping and accounting systems. It’s a common blind spot in franchise company operations. Franchisors just don’t provide franchisees with enough resources, know-how and support for bookkeeping operations.
Franchise businesses have some additional considerations other businesses don’t always have to face. For example, a franchise business starts out with a significant franchise rights payment just to get started, and must continue ongoing franchise fees. Franchise rights are an asset, but the fees required to maintain them are a liability, and contribute to your business’s overhead.
Franchise Accounting Best Practices
Accounting for franchise fees
Most franchises require an up-front fee, as well as ongoing franchise fees. Generally, the up-front fee is treated as a sale of intangible personal property, and has to be amortized over time as a capital expense.
Taxability of franchise fees.
Supplies of intangible personal property, such as franchise rights, are generally taxable. If the franchisor is a GST/HST registrant, the franchisor is required to charge and collect GST/HST on the franchise fee. Where the franchisee is required to include in its franchise fee a percentage of its revenue earned through making exempt supplies of financial services, it is still required to pay GST/HST on the entire franchise fee payable to the franchisor.
Franchise businesses often need to do a lot of volume to break even, especially since many franchise business models rely on economies of scale providing a competitive pricing advantage. These may be low-margin businesses, so maintaining a tight control of cash flow is crucial for success.
Franchises can usually benefit from careful attention to creating tools and dashboards for monitoring KPIs, or key performance indicators.
How LedgersOnline can help franchise business owners
Working with LedgersOnline provides franchise business owners with a number of advantages:
Access to an experienced bookkeeping professional.
Many small business owners are bookkeeping novices. They are experts in their own chosen trades and professions, but usually know very little about tax compliance, generally accepted accounting practices (GAAP), LIFO vs. FIFO accounting and properly categorizing expenses.
By working with an experienced bookkeeping professional, small businesses have a fighting chance to get their books in order and keep them in order. This is important when it comes time to sell the business, because business buyers will discount their offers heavily if the books are not in good shape.
A good set of books also helps immeasurably with tax compliance, and helps accountants identify tax strategies that can help you improve cash flow and profitability.
When your bookkeeping is set up properly to begin with, it can also help reduce your accounting fees, too, since accountants have to spend much less time deciphering your books.
LedgersOnline can also help by providing timely reports on KPIs and other important reports to executives, so they can make sound and timely decisions.
LedgerDocs is an exclusive, proprietary document management solution that helps business owners keep their financial documents organized. Many small business owners are overwhelmed with the huge amounts of paperwork needed to document their business operations and transactions. Even storing thousands of paper files for years can become a problem.
LedgerDocs makes it a snap to upload these critical documents to the Cloud in seconds, so that all your documents are where you can find them, when you need them. LedgerDocs also enables collaboration between the business, bookkeeper, and accountant with anywhere, anytime access to your live financial data.
Working with LedgersOnline relieves franchise business owners of the requirement to spend hours with their nose in a computer screen, manually inputting transactions, categorizing them, learning how to operate bookkeeping software and managing software updates. With LedgersOnline and LedgerDocs, business owners are able to free up hours of time each week from doing routine bookkeeping functions. So you and your team are able to focus on taking care of clients and customers, improving your product offering, sales, marketing and leading your team.