A franchise is also called a bundled business. It is founded on a tried-and-tested concept and provides market-tested products or services. In some circumstances, the franchisor will provide extensive paperwork to assist with:

  • Planning, preparation, and coaching
  • Overcoming teething problems
  • Managing day-to-day activities
  • Thriving and growing

With all of this assistance, it is comparable to venturing out alone, however, without isolation. The longer a company has been in operation, the more material it will be required to disclose. The owner will have seen some franchisees succeed while others struggle, and they will be able to provide this information.

This will offer you a short list of KPIs to concentrate on when running the business, making your task easier. You will likely profit from brand recognition from the start, you may acquire goods at a lower cost, and you can simplify administrative chores.

Franchise Risks Occur

You shouldn’t become careless even if you have confidence in the franchise’s steps and procedures. There are hazards involved with franchising that are not present in other types of small businesses, such as:

  • Additional obligations at the outset: upfront franchise fees significantly boost your beginning costs. Typically, franchisees incur more payroll costs.
  • Numerous small businesses begin as single proprietorships and add employees as they grow. Most franchises require employees from day one, requiring you to manage human resources and payroll.
  • In addition to your compensation, you will be responsible for regular franchise fees. These expenditures may increase the cost of operating a business, necessitating an increase in income to preserve firm stability. You’ll also have to manage cash flow effectively.
  • Numerous franchisees succeed by offering low-priced goods or services to reach tight sales goals. These low-margin, high-volume business tactics leave little wriggle space in the budget. If volumes begin to drop, the picture of your revenue might quickly change.

Objectives of the Franchise Accounting System

Clearly, you would want to maximise the rewards while minimising the dangers associated with being a franchisee. Consequently, you will demand procedures for:

  • Tackling debt
  • Managing employees
  • Preserving financial flow control
  • The administration of critical performance metrics
  • Managing Your Debt

Most franchisees start with considerable debt, one of the greatest risks to small businesses. These debts could be:

  • Expenses related to joining the franchise network
  • A prominent retail location (and refit)
  • Wages that must be given while employees are in training
  • This happens before earning any money, which is why franchisees often begin with more debt than sole proprietorships.
  • Maintaining awareness of your financial opportunities
  • There are a variety of financial options accessible nowadays. Your franchisor may even have provided you with a loan or insured it. If you are starting out and contemplating how to organise your funds, make sure to:
  • Be capable of refinancing if there are better financial options available.
  • Monthly, review your debt with a specialist in pursuit of lower-cost alternatives.
  • Having adequate cash flow to pay down their obligations

How To Reduce Debt Risk and Manage Your Franchising Finances

Most companies carry debt. You can save a large amount of money if you manage your debt proactively to cut expenditures. It is imperative in franchise accountancy, as monthly franchising fees (and other recurring expenses) are also withdrawn from the business’s bank account.

Establish Your Repayment Methods

Include loan repayments in your budget, and put aside the necessary funds, so you are not tempted to spend them elsewhere. Automate your repayments to avoid accidentally missing any. Inadequate payments attract late fees that can accrue and extend the payment period.

Because owning and managing a franchise requires so much capital, most franchisees employ an accountant. But if you intend to protect your finances, you must go farther. Due to the specific nature of many franchise accounting difficulties, hiring someone with past knowledge is essential. Look for a qualified accountant with experience with franchising. Accountants who work for other franchisees within your franchise’s network are even more ideal.

For any franchising information, contact The Franchise Institute at 1300 855 435 or write to us via this contact form, and we will contact you soon to answer all your queries and clear any doubts you might have.

 
Thanks for reading,
The Franchise Institute Team
1300 855 435