Wednesday, 19 Feb 2025
Franchises are different from other businesses because of their model and operational control. Entrepreneurs who want to expand into new markets without investment and workload use franchising to grow. It allows franchisees to own a business with a well-recognised brand name, intellectual property, customer base and proven processes. A franchise network consists of several units in different geographical locations selling the same products under the same brand name.
Franchises are regulated with the help of the Franchising Code of Conduct and the franchise agreement. They maintain standardised operating procedures throughout the network to maintain consistency. The franchisee benefits from the training and support the franchisor offers, who gets paid royalties in exchange. Bookkeeping for franchises is slightly different because of the royalties and marketing fees. Let us help you understand the best practices for franchise bookkeeping. It can prevent mistakes and help maintain optimum cash flow.
Franchisees must understand that every unit in the network must follow the same Chart of Accounts to maintain standardisation. It involves creating the same account types, including assets, liabilities, revenue, expenses, equity and cost of goods sold. It allows the franchisor to compare the performance of different franchisees in the network. They can identify the high-performing units and set benchmarks for others to follow. Usually, trusted Melbourne bookkeepers use accounting software with customised accounting charts to maintain consistency. It is vital to look at the reporting criteria mentioned in the franchise agreement to ensure there is no deviation from the guidelines or breach of contract.
Like every other business, franchises too need to record all transactions and the franchisee must have a separate business bank account for these incomings and outgoings. It keeps their finances untouched and ensures there is no confusion in categorising income and expenses. They must maintain accurate records of sales, salary payments, inventory purchases and other overheads. The sales reports have to be shared with the franchisor and can be done with the help of the Point-of-Sale (POS) system. This financial information is significant for compliance with regulations, understanding franchise performance and making informed decisions related to growth and budgeting.
The calculation of the royalties is a monthly task to be performed by the bookkeeper in Melbourne. They use the franchise agreement to determine the royalty based on the sales data for the period. Usually, a percentage of the gross sales is to be paid as a royalty every month or quarter. Franchisees also have to pay marketing and training fees as per the contract. The bookkeeper must calculate the amount correctly and make the payments on time to maintain a cordial relationship with the franchisor. It is also important to comply with the agreement and the code.
One of the most prominent tasks of effective bookkeeping in Melbourne is matching the financial records with bank statements to check for irregularities. It is vital to perform reconciliation every month depending upon the number of transactions taking place in the franchise. Usually, retail franchises have to process a large number of transactions daily and this is why they perform reconciliation every week. It helps to identify mistakes and prevents fraud.
Franchises should know that the initial franchise fee paid to the franchisor is not tax deductible because it is a part of the cost base paid for the franchise licence. This expense is considered a capital asset and cannot be deducted. Similarly, if the franchise renewal fee is a part of the cost base, it cannot be deducted. The franchisee can claim tax deductions if it is not included in the cost base. They can also claim deductions for the training fee paid to the franchisor for ongoing training provided to the staff members. In addition, the franchisee can claim a GST credit in the business activity statement for the included GST amount.
Franchise bookkeeping involves paying attention to building a significant cash reserve. It helps to sustain the business during low sales and unexpected expenses like the breakdown of equipment or increase in stock prices. It keeps the business protected from economic troubles like high inflation and slow growth. Seasonal franchises survive on these funds during the dry periods. It becomes easier to increase the financial stability of the business and invest in new opportunities, such as adopting a new tool to automate time-consuming functions.
Franchisees invest in professional Melbourne bookkeeping because they must maintain a positive cash flow and profitability. It is necessary to generate a significant income, pay the franchisor on time, disburse salaries, and pay the bills. Financial planning ensures incomings are higher than outgoings to increase stability. Bookkeepers reduce unnecessary spending, increase income-generating activities and create an effective budget to help the entrepreneur consistently improve profits.
Bookkeeping for franchises becomes slightly different because of the nature of the business. Its model involves regular payments to the franchisor, which must be considered during all accounting aspects. The tips above can help franchisees stay on the right path.
