Accounting Blog for Business
Posted by Cedric Joshua Martinez
Dec 1, 2016 5:11:53 PM
In accounting for franchise, most of the data you need to know will come from your franchise financial statements. These are basically reports on the different activities that circulate cash within your business and to any party outside your company, such as customers or business partners. There are 4 types of financial statements, and each can give you a different perspective of your franchise to better inform your decisions.
Franchise balance sheets are the only reports where you’d want to see a zero at the end. This means that your franchise assets are equal to your liabilities and owner’s equity. To be more clear, you can find the definition of each word below:
- Asset - Items that give value to the franchise, usually separated into three categories:
- 1. Current assets - items with immediate value (cash, supplies, stock),
- 2. Fixed assets - items with long-term value (buildings, vehicles, machinery), and
- 3. Intangible assets - items of value that are not physical in nature (Trademarks, brand recognition, customer relations)
- Liability - Any debts your franchise has accrued, whether current or long-term. These are usually incurred by obtaining assets, therefore balancing both numbers out.
- Owner’s Equity - This is the money you put into the business from your own pockets, your initial investment and any earned money you choose to reinvest back into the franchise (also known as retained earnings).
By looking through your balance sheets, you get a quick overview of how well your franchise is doing at any given time, in terms of longevity and finding areas where you can improve. For example, if you see that a certain part of your business is draining too much money, then you’re already on your first step to finding a solution. You could also see what kinds of assets are producing income and which aren’t.
This financial statement focuses on the profit or loss that your franchise accumulated over long periods of time. It should give you detailed information on your franchise’s income, expenses, and net income (income after deduction from expenses). The information you can gather from income statements can help you determine your capability to make any purchases. Can you afford another vehicle? A branch in another state? Will you be able to pay this year’s taxes fully and on time? All of these questions and others like it can be answered by analysing your income statements.
Statement of Cash Flows
If you want more details than an income statement can provide, you ask for a statement of cash flows. Like the name suggests, it tells you specifically where your money is coming from and how it is being used afterwards. This statement can give you a better idea about the money gain and loss you’ve accumulated from your:
- Financing (Loans)
Like the above income statements, knowing your position is your first step to improving your chances of success.
Statement of Owner’s Equity
Remember owner’s equity from balance sheets? This is the same thing, but this time, it’s a report focused solely on any cash collected for the purpose of improving your business through the purchase of assets and other means. This is especially important to franchisees as it gives them an idea of how much capital is given to them by their franchisors. Rather than run the risk of miscommunication and going under or over budget, you should make it clear to all those involved how much money can be allocated to each project.
Now you know where to look for data to improve your decision-making skills and lessen the chances of failure. Make sure that you have a trusted accountant aided by top-of-the-line franchise accounting software to make these reports for you, instead of spending valuable time on accomplishing these yourself. Go and make the best decisions to bring your franchise that much more closer to your goals.
Want to know more about your franchise financial statements or how to better analyse your data? Schedule a consultation with us by clicking the button below, and our team of accountants experienced in providing high-end finance and accounting services to organisations around the globe will answer your questions and clarify any topics you have in mind. Become a stronger franchise today!
Topics: Franchise Accounting