Meru Accounting specializes in bookkeeping for franchise business.
We have a planned accounting policies model to meet the client requirements very effectively and accurately.
Franchise business is like a branch or start-up industry that is meant to cater to the main brand’s business to various locations with limited establishment and setup. However, various entities such as franchisor, franchisee and other regulatory authorities function in this business.
For smooth running and proper functioning of its business, franchise organizations require reporting of statements on revenue obtained, profit and loss incurred, business updates concerned with its operations to the concerned franchisor. This reporting takes places over a range from weekly to quarterly and annually based on the specification laid down by the parent company, in particular, and other regulatory authorities such as the ‘Federal Trade Commission’.
Even the franchisor requires to share details and documented information for accounts to the respective franchisees that is used as reference and for updating. This refers to franchise disclosure document (FDD) which is a legal report that is presented to the franchise buyers. On request, the franchisor should present this document along with other audited financial reports.
How to do Accounting for Franchise Business?
Franchise business has its own accounting model in term of reporting requirements.
They have a standard chart of accounts which needs to be used by all the franchisees.
The profitability in such kind of business is generally fixed as certain % of revenue.
Need to make up a policy for writing off of one-time franchise fees.
Some of the Accounts Typically used Franchise Royalty fees, Franchise Fees Amortization.
Also need to check the calculation of Franchise fees payable quarterly or monthly and need to account for payable.
Profitability, in case of a franchise system
is a fixed portion of revenue calculated in percentage form and is a variable of the fees set by the parent company or the franchisor. This fees is a determinant of the profit that is earned by the franchisees which is a fixed percentage of the revenue made by the organization. Hence, it is also important to set fees based on the ability of the franchise industry to incur the start-up costs to provide working under a brand name and its products and services. The one time franchise fees needs to be accounted by implementing policy that in turn will help to calculate the amount to be deducted from the business income tax return.
Franchise fees can be accounted in various ways depending on the franchisee’s convenience and requirement of franchise organization and parent company. Two of the most basic account management techniques are ‘franchise royalty fees’ and ‘franchise fees amortization’.
Through these types of account, the franchise pays its fees over a period of time which is spread over monthly, quarterly or a yearly time frame. The royalty fee is an income for the franchisor that is obtained once the franchise has been established. It is a fixed percentage amount of the gross sales that the franchisee pays. While franchise fee amortization is the distribution of the franchise fee over a predetermined period, either yearly or monthly.