Are you a current franchisee or are you considering buying a franchise? From restaurants to service-based businesses such as home care, there are many options! However, no matter what type of franchise you buy or operate, you need to have a solid understanding of the financial and accounting considerations:
Initial fees: These fees cover the right to use the franchisor’s name, branding and other assets. Some people think this also covers startup costs, but don’t be mistaken, these fees only take care of franchise costs, not leasing or purchasing a building or purchasing equipment.
Amortizing initial fees: Franchisers often offer the option of paying off initial fees over time, like a house or car loan. This process is referred to as amortizing the initial fees. If you do take this route of paying off your initial fees, it is your responsibility as the franchisee to keep track of your payments until the “loan” is paid off.
Royalty fees: In addition to your initial fees, franchisers require you to pay royalty fees each month. These are often calculated as a percentage of revenue.
Marketing fees: Similar to royalty fees, marketing fees are a monthly expense you’ll need to budget for. The franchising company pays hundreds of thousands of dollars every year on marketing that you as the franchisee benefit from, so you are required to pay into the pot to help cover these fees.
Get involved in your accounting process: Tracking your revenue and expenses is key to keeping your franchise financially healthy, forming the foundation of your business accounting. Making sure these are current and accurate is essential so you know where your business stands in terms of your cash flow and profitability. Many franchisees find that they cannot keep up with the demands of working in their franchisees and doing accounting work, this is when outsourcing your franchise accounting is a smart move.
Hiring an accountant specialized in franchises: There are typically many financial and business intricacies related to running a franchise beyond basic accounting, so it’s important to have the right support. Hiring an accountant specializing in franchising, such as those on our team, will allow you to optimize your franchise business and, if you are just starting out, ensure that you are aware of all potential benefits and challenges related to franchising.
McComb & Company specializes in franchise accounting. If you are thinking of opening a franchise or need outsourced accounting services for your franchise, contact us to learn more about our comprehensive business solutions to support you.