Meru Accounting specializes in bookkeeping for a franchise business.
We have a planned accounting policies model to meet client requirements effectively and accurately.
Franchise business is like a branch or start-up industry that caters main brand’s business to various locations with limited establishment and setup. However, various entities such as a franchisor, franchisee and other regulatory authorities function in this business.
For smooth running and proper functioning of their businesses, franchise organizations require reporting of statements. These statements are of revenue earned, profit, and loss incurred, business updates concerned with its operations to the concerned franchisor. Then, this reporting takes place ranging from weekly to quarterly and annually period. They base it on the specifications laid down by the parent company and other regulatory authorities like the ‘Federal Trade Commission’.
Even the franchisor is required to share details and documented information for accounts to the respective franchises that he uses as a reference and for updating. This refers to the franchise disclosure document (FDD) which is a legal report that a franchisor presents to the franchise buyers. Thus, on request, the franchisor should present this document along with other audited financial reports.
How to Do Accounting for a Franchise Business?
Franchise business has its own accounting model to report requirements.
They maintain a standard chart of accounts that is used by all the franchisees.
The profitability in such a business is generally a certain percentage of the revenue earned.
Need to frame a policy for writing off of onetime franchise fees.
Some accounts typically used Franchise Royalty fees, Franchise Fees Amortization.
Also, there is a need to check the calculation of Franchise fees payable quarterly or monthly and account for payable.
Profitability with a franchise system
Profitability is a fixed portion of revenue franchisee calculated in percentage form. It is a variable of the fees that is set by the parent company or the franchisor. Therefore, this fee is determinant of the profit that the franchisees earn. It is a fixed percentage of the revenue made by an organization. Hence, it is also important to set fees based on the ability of the franchise industry to incur the start-up costs so as to provide working under a brand name and its products and services. The onetime they account franchise fees is by implementing a policy that will help to calculate the amount to be deducted from the business income tax return.
We can account franchise fees in various ways. It depends on the franchisee’s convenience and the requirements of the franchise organization and parent company. Two of the most basic account management techniques are ‘franchise royalty fees’ and ‘franchise fees amortization’.
So, through these types of accounts, the franchisee pays its fees over time, which splits up over monthly, quarterly, or yearly. The royalty fee is an income for the franchisor which is obtained on establishment of the franchise business. It is a fixed percentage amount of the gross sales that the franchisee pays. Franchise fee amortization is the distribution of the franchise fee over a predetermined period, either yearly or monthly.
To know more about our bookkeeping services, contact Meru Accounting today!