You set up your franchisor Company, filed your FDD, and ready to start selling? Great, congratulations!

Here’s what you need to know about franchisors’ accounting.

When it comes to the world of franchising, there are many different aspects to consider in order for both the franchisor and franchisee to be successful. One area that is often overlooked is franchisor accounting. I know, boring!  As a franchisor, it is important to have a solid understanding of the financial aspects of running a successful franchise system.

Franchisors are responsible for creating and maintaining the infrastructure that supports franchisees, such as providing training, marketing materials, and ongoing support. They must also ensure that all franchisees are adhering to the standards set forth by the franchisor in order to maintain consistency across the brand.

5 elements to successfully handle the boring task of accounting:

1.        Tracking and Managing

One key element of franchisor accounting is tracking and managing royalties. Royalties are ongoing fees that franchisees pay to the franchisor in exchange for the right to use the brand name and operational systems. It is important for franchisors to have a clear system in place for collecting royalties and ensuring that all franchisees are paying their fair share. Many franchisors rely on software or a program that automatically monitor and track the franchisees sales, and automatically calculate your royalties for the period. It’s highly recommended that you automate this process.

2.        Financial Reporting

Another important area of franchisor accounting is financial reporting. Franchisors must be able to accurately track their financial performance, including revenue, expenses, and profits. This information is vital for making informed business decisions and ensuring the long-term success of the franchise system. Taking a look at your balance sheet and income statement on at least a monthly basis is a definitely helpful way to monitor your performance. Low cash balance, high debt, slow franchise sales, can weaken the Company’s financial position.

3.        Franchisees’ Reporting

In addition to financial reporting, franchisors must also be able to provide financial support to franchisees. This may include helping franchisees secure financing, providing budgeting and forecasting support, and offering guidance on how to manage cash flow. Once you make your franchise sale, your franchisee’s financial becomes a representative of your brand. Therefore, it’s beneficial to the brand that you check and monitor your franchisees’ financial health.

4.        Compliance

Compliance is another critical aspect of franchisor accounting. Franchisors must ensure that all franchisees are adhering to the brand standards and operating procedures set forth in the franchise agreement. This includes ensuring that all franchisees are properly licensed and that all trademarks and copyrights are properly protected.

5.        Franchisor’s Cost

Finally, cost control is a key component of franchisor accounting. Franchisors must keep a close eye on their operational expenses, such as marketing costs, support staff salaries, and rent or real estate expenses. By managing costs effectively, franchisors can ensure that they are able to provide the necessary support to franchisees while maintaining a healthy profit margin.

Conclusion

In conclusion, franchisor accounting is a critical component of running a successful franchise system. From managing royalties and financial reporting to providing financial support to franchisees and ensuring compliance, there are many different elements that go into effective franchisor accounting. By prioritizing these tasks and maintaining a clear focus on financial performance, franchisors can create a profitable and sustainable franchise system that benefits both the franchisor and franchisee alike.