What franchise accounting is

The short answer

Franchise accounting is ordinary bookkeeping plus the rules your franchise agreement adds. The agreement defines what counts as gross sales, how royalties and ad fund contributions are calculated, which reports go to the franchisor and when. A franchise bookkeeper sets up the books so those numbers come out right every month without extra work.

What the franchise agreement adds

• A definition of gross sales. Royalties are a percentage of that number, and it often differs from the revenue line in QuickBooks. Gift card sales, refunds, discounts and sales tax are each treated in a specific way.
• Royalty and ad fund payments, usually weekly or monthly, drawn from your bank account.
• Reporting to the franchisor, often through a portal, on a set calendar.
• Technology, software and marketing fees, some fixed and some a share of sales.
• In many systems, a required chart of accounts or a required format for your profit and loss.

Who needs a specialist

An owner with one location, clean books and a simple point-of-sale system can do well with a good general bookkeeper who learns the agreement. A specialist pays off once there are two or more locations, more than one legal entity, payroll in more than one state, a franchisor reporting format to follow, or memberships and gift cards that create deferred revenue.

What good franchise books produce

• A profit and loss for each location, closed by the middle of the following month.
• Royalties and ad fund contributions that tie to the franchisor’s statement.
• A balance sheet where every account is reconciled to a statement.
• Numbers you can set beside your brand’s FDD to see where you stand.

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Questions

Is franchise accounting different from regular bookkeeping?

The work is the same. The franchise agreement adds rules about gross sales, royalties, the ad fund and reporting, and the books have to be set up to follow them.

Do I have to use my franchisor’s bookkeeper?

Most agreements let you choose your own bookkeeper as long as the reports arrive on time and in the required format. Check the franchise agreement and Item 8 of the FDD for any required suppliers.