The Key Aspects Unique to Franchise Accounting

Posted by Cedric Joshua Martinez

Nov 24, 2016 7:36:38 AM

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There are many different fields in accounting (such as tax, business, etc.), making it a little complicated to differentiate franchise accounting from the rest. While it may share many qualities with general accounting - such as analysing finances, bookkeeping, etc. - there are three key differences that set it apart from the rest. That means that there are additional tasks unique to a franchise accountant. The first two are relatively small differences while the last really makes up most of the workload in franchise accounting (apart from their usual duties).

Additional laws and regulations

Other than the laws that govern every business, some countries have laws specifically concerning franchising. For example, Australia has the Franchising Code of Conduct, which applies to both the franchisor and franchisee. There, you will find a set of obligations, among which is a document detailing all the opportunities and risks of your business. This is required to be given to prospective franchisees, and is usually set up by your franchise accountant. There are many other obligations, so please take the time to look, lest you are burdened with franchising penalties and infringements.

Another common mistake franchise owners commit is not taking into account the local laws of the territory. For example, what may be required of you in Sydney may not be the case in Brisbane. Always be aware of all laws, from the global level to the city laws.

Revenue recognition

The franchise business model isn’t as simple as other businesses; that is partly because of how your income isn’t always recognised as income. There are certain criteria to pass before you’re free to use it as you wish, but how do you know which is income and which isn’t? Simply, your franchise accountant should know as this is part of the job description. If they cannot, then you probably should ask them to undergo further training before you get caught with legal issues.

Contractual relationship between the franchisor and franchisee

This is where franchise accounting really branches out from the other specialisations in the field. Starting, maintaining, and ending the partnership all involve money in different ways. It is ideal that your accountant has the franchise’s development at heart and is exposed to as much data as you can give; therefore, you should be assured that at every stage, they act to improve your company and have reasons behind each action.

Even before the initial purchase, preparations are made to ensure a long business term. Your franchisor accountant should evaluate potential franchisees for their profitability and other characteristics. They should be able to tell you which prospect is worth the investment of time and money. On the other hand, if you’re looking to become a franchisee, your accountant should assess the strength of your choices to give you the best option.

The starting franchise fee isn’t the only thing your franchise accountant must track. A relationship implies constant interaction with the other, and that’s exactly what will happen. Franchisees are required to return a percentage of their revenue to their franchisors. The amount depends on your franchise agreement, and like any flow of money, must be carefully monitored by your accountant. On the franchisor side, they are sometimes expected to send aid to their franchisees (again, this depends on your agreement). This can be in the form of tools, trainers, supplies, or franchise software solutions.

Click here to learn more about financial transparency between franchisor and franchisee.

 

Differentiating franchise accounting from other forms is simple once you understand it fully. You should always keep these in mind when choosing or training your accountant. They should know what other laws should be accounted for (especially if your franchise branches out to different states like Queensland or New South Wales) and when they should recognise income as revenue and, more importantly, understand the relationship between franchisor and franchisee.

 

Want to learn more about franchise accounting or general finances and bookkeeping? Schedule a consultation with us and we’ll make sure that your financial questions will be answered. Our experience in providing services to international franchise owners gives us the knowledge we need to address your concerns.

 

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Topics: Franchise Accounting

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