Entering into a franchise agreement is exciting and fun as it comes with a lot of advantages such as proven business methods, ongoing marketing activities and complete assistance with setting up and running the business. You get a piece of mind that the brand is already established, and you do not need to start from the scratch and actively involved in marketing activities.
However, buying a franchise also means an ongoing commitment for many years or you are ready to give up on your big lump sum deposit. Therefore, it is essential to be aware of franchise risks and how to manage them effectively.
Franchisee Accounting Tips
Following are few key points to consider when running a franchise and how accounting/bookkeeping can assist you to overcome these challenges.
We use our lump sum savings or borrow money from friends or banks to buy a franchise. If you have borrowed money to start a franchise, you need to fully understand and plan your cash flows to repay the debt and compound interest on the top charged by the financial institutions.
Staff Wages and Taxes
Yes, you would need to pay the staff wages plus superannuation and the tax withheld to the Australian Taxation Office while they are in training phase and before you earn any single cent from the business. You also need to be aware of ongoing staff costs to run the business.
Often franchisees are required to refurbish the store before trading which again is the extra capital involved. Moreover, you also need to plan for the unforeseen circumstances and have a minimum working capital required to run a day to day operations.
Apart from cash flow issues, many franchisors put pressures on franchisees to increase sales as they get royalties and have strict policies and procedures in place which needs to be followed.
How Accounting Can Help to Manage the Franchise Risks
Here are key points to consider how to effectively manage your franchise risks.
Where you have spent thousands of dollars on a franchise, saving money on accounting software would not be very ideal.
It is crucial to regularly maintain your books and develop and monitor KPI’s such as sales targets, costs reductions and complete understanding of your incomings and outgoings.
An accounting software such as Xero, MYOB or Quickbooks can help you maintain your books if you are a small business.
Secondly, most of the franchisors would require you to send your financials and BAS statements lodged to know the business performance.
Thirdly, you also need to satisfy the taxman who wants to make sure you are meeting your tax obligations.
Plan your Cash Flows
As well said “Cash is King”, you need to plan your cash flows every day to make sure you have enough working capital to pay for wages, overheads, ongoing debt plus interest and of course yourself.
Cash Flows can be maintained by using a simple excel sheet or you can find hundreds of software online for planning.
Irrespective of the software, most importantly you need to plan ahead for the next week, month and the year.