What is Franchise Accounting (And Why Your Franchise Business Needs It)

Franchising provides a unique opportunity to successful business owners and burgeoning entrepreneurs alike.

For existing small business owners, franchising provides an opportunity to capitalize on their hard work and proven concept. Through franchising, they can bring additional partners who will scale their brand in new markets.  

For entrepreneurs, franchising allows them a path to small business ownership without starting from scratch.

It’s tempting to think about franchise businesses as any other small or medium sized business. And while there are a lot of similarities, there are many traditional business processes and systems that aren’t well suited to serve franchises. A traditional accounting vendor is one of them.

Shortcomings of Traditional Bookkeepers and Accounting Firms for Franchises

Local bookkeepers might be able to manage a franchise’s financials while they’re at one or two locations. However, if you’re planning to grow your business, you might want to find a different partner.

In addition to their limited ability to scale, bookkeepers are also limited by which systems they can integrate with. Having your accounting connected to your POS and payroll systems is critical for seamless accounting.  

Larger accounting firms, on the other hand, often can manage the needs of a growing business. But this service might come at the cost of dedicated account support.

Understanding your accounting data is critical to understanding the health of your business. It provides insights about vendor errors, staffing efficiencies, inventory management and forecasting. Without a dedicated account manager, you’re left to make sense of your accounting data without the context that can be offered by a financial pro.

Both bookkeepers and accounting firms also lack specific franchise experience. This means you might end up managing more of the financials than you bargained for. Both franchisees and franchisors have specialty accounting needs atypical to other types of businesses (described below).  It’s critical for their accounting partners to understand these specific requirements so you can confidently focus on running your business.

As a franchise owner, you have a lot of demands on your time. Ideally, you’d have an accounting partner you can trust with all the nuances of your business so you can focus on running everything else.

Special Accounting Needs of Franchise Businesses

Franchises have a host of additional accounting requirements that non-franchise businesses don’t encounter.

Royalty fee collection, marketing fee payments, routine financial reporting, multi-unit economics, producing a meaningful I-19; these are just a few of the things your accounting partner needs to be well-versed in to competently manage your books.

Below, we go over some of the specific accounting needs for the different types of franchise businesses

Single-Unit Franchisee Accounting Needs

Monthly accounting, bill pay and payroll are standard accounting services. Franchisees also need accounting partners who can provide full-integration to franchisor dictated systems. Franchisors may dictate POS and payroll systems. Franchisees need an accounting partner who can integrate with these systems for access to their full financial picture.

Managing payment of royalty and marketing fees is also essential for franchisee accounting. Lastly, you’ll want a partner who can help you make sense of your financials and provide clear reporting for any franchisor reporting requirements.

Multi-Unit Franchisee Accounting Needs

In addition to the needs of single-unit franchisees, multi-unit franchisees require levels of visibility to accurately capture their full financial picture.

This requires comprehensive, consolidated, and consistent reporting across their units. This gives franchisors the most accurate data to benchmark and forecast performance at the unit and multi-unit level.

These businesses will want an accounting partner who can manage both the day-to-day financials of individual units and big picture economics.   

Franchisor Accounting Needs

Franchisors are in the unique position of being responsible for the overall health and reputation of a brand while supporting of all the individual franchisee owners. They can protect both by ensuring franchisee reporting compliance and identifying underperforming stores for early intervention.

One way to do this is to have a preferred accounting vendor. Having all your brand partners use the same accounting vendor gives you greater visibility into your overall brand health and helps reinforce standardized procedures.

The right accounting partner will also manage your marketing and ad fund. They’ll make sure the fees are collected by collecting the fees and paying the bills.

Franchisee compliance tracking is another service you’ll want to look for in an accounting partner. This will help you stay on top of regular reporting requirements as a franchisor.

One of those reporting requirements is creating the Item 19 for your annual Franchise Disclosure Document. The Item 19 informs the reader about the financial performance of existing franchised units. It’s a critical area of assessment for new potential brand partners. A meaningful I19 is an important aspect of franchisor accounting as it will impact both the short and long-term success of your brand.  

New & Emerging Franchisor Brands Accounting Needs

The right franchise accounting partner can help you set your business up for success from day one. As an emerging brand, your new franchisees are ready and willing to adopt whatever systems and processes you set in place for your business. Going back and asking established franchisees to adopt new accounting systems and processes later is a much harder thing to do. And without uniform accounting, your business misses out on visibility into your overall brand’s performance.

The right vendor can also be a consultant as you set up your chart of accounts, select and set up your POS, and help you set up an accounting system to optimize franchisee success.

The Benefits of a Specialized Franchise Accounting Partner

An accounting partner who specializes in franchise accounting won’t just be well-versed in all of the franchise accounting needs described above, but they’ll also deliver these services with accuracy in a timely manner.

Having a partner you can trust with your financials gives you the time and confidence to manage the rest of your business with the peace of mind that your financials are in order.

Ready to learn more about a specialty franchise accounting partner? Contact us for a demo today.