Franchise Accounting

If you are a Franchisor, achieving clarity and transparency of Franchisee performance is crucial to maintaining the integrity of the brand you have built up over so many years.

Franchising is a very common business model in Australia, with over 1120 business format franchises and an estimated 79,000 franchise units in Australia (expecting to rise to over 90,000 by 2020), employing more than 470,000 people and generating approximately $146 billion of sales turnover annually (source: Frazer, Weaven et.al, 2016, “Franchising Australia 2016”, Griffith University Asia-Pacific Centre for Franchising Excellence).

Why buy a Franchise?

There are several advantages of buying into an established franchise, with the franchisor often having spend many years and decades establishing and documenting the brand identify and key systems and processes that have made the business a success. Upon purchase a Franchisor will typically provide the new Franchisee with:

– Setup, training and planning
– Detailed Manuals to help guide day to day operations
– Choice of approved systems to run your new franchise
– Centralised marketing and branding support
– Benchmarking data and KPIs to help you track your day to day performance
– Key responsibilities including:

  • reporting frequency, and
  • calculation and payment of Franchise fees

A long-established franchise will have a lot more data they are willing to share with new franchisees, as well as lessons learnt from franchisees that may have failed in certain territories.

Buying into an established franchise will also allow you to benefit from brand recognition, access to exclusive and often discounted stock, and access to their industry secrets and competitive advantages.

What is Franchise Accounting?

All of the benefits above come at a cost to those buying into a franchise (eg: higher startup costs, minimum staffing quotas, extra overheads, sales targets and ongoing franchise fees and marketing contributions).

Therefore managing the health of your Franchise is crucial as there are additional stressors to owning a franchise versus going it alone that need to be careful observed and managed. Frachise accounting covers all areas :
– Dealing with debt (debt serviceability)
– Protecting your margin (Gross Profit is the lifeblood of any retail store)
– Protecting your cash flow

  • Is there enough cash to cover upcoming franchise fees?
  • Can you afford payroll?
  • What payment terms are your suppliers asking for?
  • Can you afford loan repayments?
  • What marketing outlay will you require for upcoming promotions?

– Managing employees and employee entitlements
– Staying on top of cash flow
– Looking after KPIs (Key Performance Indicators)
– Warehousing and inventory management (including consideration of any supplier settlement discounts that may be available)

Why a franchise accountant is a good idea?

It is often said that buying a franchise is like going out on your own, without being on your own. The franchisor will demand their fee for you to continue trading under their brand, however you also need to make profit yourself and protect your investment. A franchise accountant can assist you with the following areas of Franchise Management, and really help you understand the benefits and associated risks that you’ll face from running a franchise:
– How to deal with franchise fees
– How to manage compliance expenses
– What you need to report to the franchisor (and how to streamline this)
– Where franchisees typically go wrong
– What successful franchisees do well
– The most important KPIs (Key Performance Indicators).

Are you ready to speak with a franchise accountant? Leave your details below and one of our team will be in touch with you shortly.

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