Being a franchise owner means that you can easily run a brand new business without having to brand an entirely new company. However, this does not mean that you will not have to be really serious with accounting tasks that will be needed. There are specialized franchise accountant services available for a reason. You may think that everything is the same as with a regular company but that is not actually the case.
The franchise location is basically owned by the individual businessman. However, the franchise will be run by the franchise owner. We have the brand that is owned by an entity not in the control of the person that runs the franchise location. With accounting for franchises the important things to remember are the following.
Franchise Accounting And Fees
A franchisee will have to pay some fees to the franchisor. This allows the new location to use the products, services and brands of the business. Every single fee has to be presented by franchisors. Payments of initial fees and ongoing royalty fees are what is normally seen. Additional fees may be necessary at times.
The Initial Fees
Operating under a company’s operating systems, trademarks and name will be available after paying the fee. Such a payment will also include necessities like training, renovations, equipment and other opening costs. A lump sum payment is normally necessary and the possibility to amortize the fees sometimes exists. This means that the franchisee will normally be allowed to deduct these fees from business tax returns. This is quite similar to depreciation but it will take into account the intangible assets like a business trademark. An initial fee is allowed to be amortized in a maximum of 15 years. You have to deduct the exact same amount every single year so even division is always necessary in franchise accounting.
The Royalty Fees
After the franchisee starts operating, royalties will be needed. That is set up on a yearly, quarterly or monthly basis. In most situations that fee is equal to a gross sales percentage. However, there are some franchises that ask for a net sales percentage or even a flat fee. A franchisor will basically make money thanks to the royalty fees. Fixed costs are also going to be covered thanks to these royalty fees. A royalty fee will have to be paid by a franchisee at the right date regardless of the revenue that was generated.
With franchise marketing fees things can be a little difficult. There are franchisors that are charging marketing fees. Basically a franchisee would contribute to an overall larger marketing fund. Franchisors will utilize the funds in order to pay for all advertising materials necessary to promote the brands of the franchise.
As you can see, franchise accounting involves some things that most people do not know much about. There are also others that could be taken into account. It is really important that you always hire someone that has experience with franchises when looking for the best accountants to have on board.