The Benefits of Consulting a Franchise Accountant
The advantages of franchise investment opportunities are well known. Itís a proven concept and offers products or services that have been tried and tested. You benefit from brand awareness, and you have the support and training from an experienced franchisor.
It should be remembered though, that buying a franchise also comes with some risks that an independent business owner may not encounter. However, having a professional franchise accountant on hand will help you to avoid the dangers and enjoy the benefits.
What risks do franchise investment opportunities present?
Although the risks involved in buying a franchise can - on the whole - be mitigated, you should be aware of them, so you can manage them effectively.
- Increased franchise cost at start up
The franchise fee, plus the cost of setting up a franchise can be significant depending on what type of business you choose.
- Increased employee costs
When an entrepreneur is just starting out, they tend to begin small and grow organically. This often isnít the case though for the larger franchise investment opportunities. Right from day one, you may need employees to help run the business which is an immediate franchise cost to your business.
- Increased overheads
As well as rent and wages, youíll also need to pay ongoing fees to the franchisor. These include royalty and marketing fees which are generally calculated as a percentage of gross sales.
How to control the risks with efficient franchise accounting
A professional franchise accountant can help you manage the following challenges to ensure that you donít default on the franchise contract:
Having adequate capital to fund a new business is a concern for many entrepreneurs, but with the franchise fee, lease and fit out of premises, as well as an immediate wage bill, the issue may be more significant for franchisees.
What makes it worse, is that you need to make payments before you earn a penny, often leaving franchisees with debt to manage. Your franchisor may have helped you fund the franchise, but there will be other franchise options you should consider in case you can get a better rate.
A franchise accountant can help you manage your debt which may even keep the costs down for you. They can ensure that your loan repayments are separate from other expenditure. You don't want to end up missing payments and incurring late payment fees.
You may never have had to manage staff before, but with franchises in certain industries, youíll have a team that youíll need to train, motivate and pay.
Itís recommended that you automate a lot of the administration that comes with managing employees to allow you to focus on running the business. There are a whole host of software and apps that can make your life easier and are well worth the additional franchise cost.
The most common software that franchisees use calculates staff wages and tax with limited hassle and even pays money directly into their bank accounts. There are also apps available that enable you to produce staff rotas and then share them instantly with your employees via their phones. These may be little things, but when youíre running a busy franchise, these time and cost saving hacks can make a big difference.
Managing cash flow
Any business owner will tell you: cash flow is king. There are times when working capital is needed to keep your franchise afloat when your bills need paying, but youíre waiting on customers paying for the services or products theyíve already received. Being undercapitalised is one of the main reasons for the failure of franchise businesses, so cash flow needs to be managed appropriately. This can be challenging in franchise accounting because wages, rent and ongoing franchise fees need to be covered on a monthly basis.
A franchise accountant will assist with understanding your budget which is the key to having positive cash flow. Together, review your franchise contract so that you know precisely what your regular payments are so that you can plan accordingly.
Ask your accountant to create a cash flow dashboard so that you can track all your transactions. This way youíll always know how much youíve spent compared to how much youíve earned and have a better handle on your day to day budgeting.
The benefits of hiring a franchise accountant
You may be good with numbers and spreadsheets, but because thereís so much money involved in buying and running a franchise, itís recommended that you consult an accountant. However, as some issues are only found in the world of franchising from an accounting perspective, hiring an accountant that specialises in franchise businesses is wise.
Not only are there tax implications related to franchise fees, but there is also a particular way that accounts need to be reported to the franchisor. Having an experienced accountant who knows the ins and outs of franchising will ensure that you adhere to the franchise contract from a financial perspective.
To give you an additional advantage, you could consider hiring an accountant that is familiar with your franchise and works with other franchisees in your network. This way they can inform you of any specific challenges youíll encounter that are unique to your franchise or industry.
To be a successful and profitable franchisee, it's vital that you monitor your cash flow to avoid unnecessary pressure being placed on your business. Work with your franchise accountant closely and meet regularly to watch your cash flow dashboard and discuss any areas for improvement.
Itís crucial that you recognise that although youíre buying into a proven business model and an established brand, things can and do go wrong. So, whether you're entirely new to the world of business, or an experienced entrepreneur, you need to have a full appreciation of your financials to understand how your franchise is performing. The most effective way to do this is to consult a specialist franchise accountant.
The Editorial Team, Point Franchise ©
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