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What are the Basics of Franchise Accounting?

Businessman Holding Paperwork On The Table And Analyzing Investm

As we previously discussed, franchising is a hybrid model that combines small business ownership with corporate oversight. The franchisor is an established entrepreneur with an established, licensed business model. The franchisee is a person or corporation that operates their individual business using the model obtained from the franchisor while having access to proprietary and trademark licenses.

Many businesses are franchises and you might not even know it. Whether you’re eating lunch at a Wendy’s, staying at a Super 8 hotel – each one of these individual businesses are franchises. Franchises enable owners to start and build businesses using the support of an existing brand. Small business owners can use these established products and services to minimize risk and increase chances of financial success. However, owners must be aware of the basic rules of franchise accounting when it comes to managing their business.

ALL businesses do these back office activities

Franchises have a lot of similarities with traditional small businesses. After all, all businesses have one thing in common, the goal of profitability. If a business has more money going out than coming in, it will never be successful regardless of the operational structure. Furthermore, every business must perform certain back office activities to support the needs of the company.

Let’s compare owning a Dunkin Donuts franchise to a small independently run coffee shop. Both businesses have to order cups, purchase beans, and effectively pay their vendors on time. Both have employee payrolls, overhead costs, rent payments, and taxes due. Each business has to also manage spending, track revenue, and measure their monthly, quarterly and annual financials. Without proper financial insights, both businesses won’t be able to effectively assess profitability.

Although franchises operate similarly to other small businesses, there are certain differences to be aware of. Understanding the unique nature of franchise accounting can help franchisees manage the needs of their business.

But here’s what’s unique about a franchise’s bookkeeping

Traditional bookkeeping differs from franchise accounting in a number of ways. While small businesses have to record every transaction in the business, managing a franchise comes with added challenges.

Let’s go back to our prior example comparing a Dunkin Donuts franchise to a small independently run coffee shop. Although both businesses have to manage payroll, overhead costs, and spending – franchises must follow additional rules and guidelines.

The owner of a Dunkin Donuts retail location in Boise has to pay royalty fees to use corporate logos, menus, and trademarks. They must also account for startup fees, pay a percentage of profits, and submit monthly financial reports to the corporate headquarters office. If multiple locations are involved, this adds an additional layer of complexity.

Franchisees must understand their unique accounting requirements to adhere to corporate regulations and guidelines. Docyt can help easily manage your franchise accounting.

Docyt specializes in franchise accounting

Franchise owners must understand the intricacies of their accounting practices to successfully grow their business and stay compliant with the franchisor corporate office. Docyt’s custom built franchise accounting software provides owners with the tools and resources needed to manage and oversee their finances.

Docyt helps franchisees manage their bill pay, automate bookkeeping, and see financial statements in real-time. Owners can even improve profitability with real-time insights into labor reports, manage expenses, and manage their multi-location payroll. With seamless payment processing and payroll integration – franchise owners can use Docyt to build their business and obtain more financial control.

Grow your franchise with Docyt

Using Docyt, franchise owners can automate their accounting so they can more closely focus on running the business and increasing profitability. If you want to grow your franchise to multiple locations, Docyt provides the multi-location accounting tools to support you when you add your second location.

Docyt’s stakeholder dashboards help business owners scale their franchises. Performance data can be easily shared with business partners and investors to provide complete real-time insights across all locations. Business owners can also step away from the day-to-day operations by empowering their general and department managers with financial performance data on their respective area of the business – helping them grow and scale organically.

If you’re looking for a tool to manage your franchise accounting, Docyt can help. Schedule a free consultation today.

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Sheila Kilbride - Docyt Director of Marketing

Sheila Kilbride

Director of Marketing

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