Avoiding Common Franchisor Bookkeeping Mistakes

What happens when franchisors make bookkeeping mistakes? They can face harmful financial inaccuracies, compliance issues, and worst of all, strained relations with their franchisee.

Here are some of the most common mistakes franchisors make in bookkeeping practices.

13 Common Franchisor Bookkeeping Mistakes to Avoid

1.  Lack of Financial Transparency with Franchisees

If Franchisees fail to provide clear, accurate and timely financial reports, franchisors will not have the data they need to make well-informed decisions about their operations.

Communicate honestly with franchisees on financial matters. Not sharing pertinent information can lead to misunderstandings and mistrust. Be available to discuss financial concerns whenever they need your ear.

2.  Incorrect, Delayed or Inconsistent Royalty Collection

Disputes with franchisees — and even legal issues — can result from not calculating royalties properly or collecting on time. If you use an outside bookkeeping firm with franchise experience, you can avoid these hassles. At BookWerks^TM, we make sure all royalties are accurate and in line with the franchise agreement.

3.  Poor Documentation

Another thing that can cause clashes between franchisors and franchisees is incomplete or poorly maintained financial records. If you don’t have previous experience with managing business finances, it may be a good idea to outsource to a bookkeeping company so your documentation is always accurate, clear and well-organized.

4.  Failure to Monitor Compliance

It is your job to make sure your franchisees comply with the financial and operational standards in your franchise agreement. As with delaying the collection of royalties, not providing regular compliance oversight can lead to big financial and operational headaches within the franchise system.

5.  Late Collection of Marketing and Advertising Fees

If you fail to collect marketing, advertising and other fees FROM ALL YOUR FRANCHISEES at the same time, you could be headed for tensions between franchisees. Partnering with an outsourced bookkeeping company like BookWerks^TM can ensure that you’re ready to collect information in a timely, consistent manner, leading to smoother sailing for all involved.

6.  Lax Internal Controls

These can set you up for mismanagement, fraud or errors in financial reporting. Investing in controls and bookkeeping services that are timely, consistent and accurate will save you from so many larger headaches down the road.

7.  Ignoring Tax Obligations

Avoid penalties and legal troubles by staying current with all your income, sales and other tax obligations. If you do not have a trusted tax accountant, we can help you find one.

8.  Letting Financial Systems Get Out of Date

As your business evolves and grows, your financial systems and software may need to be updated. BookWerks^TM can scale up quickly to make sure your bookkeeping processes stay both cost-efficient and state-of-the-art.

9.  Inconsistent Accounting Standards

Every franchisee must follow the same bookkeeping practices. Not only is it hard to compare performance if different franchisees are using different standards, inconsistencies can lead to confusion and disputes. Consistency is key when it comes to franchise bookkeeping and procedures.

10. Avoiding Conflicts

When franchisees have a concern about finances, the longer you wait to address the issue, the more unpleasant the conflict will become. Try to resolve conflicts in a respectful, professional, and timely manner.

11. Cutting Corners on Training and Support

Saving money on training and support in the short-term can cause expensive, long-lasting problems. The more franchisees know about managing their finances, the fewer costly mistakes they will make. Especially with people new to franchise ownership, err on the side of caution and provide all the tools they need to succeed.

12. Overlooking the Value of Bookkeeping

Some franchisors downplay the value of accurate day-to-day financial recordkeeping — at their peril. While bookkeeping is not a revenue-producing part of your business, it is essential to maintain financial stability.

We use automated data input to cloud-based accounting systems so your financial information is always accurate and available to you. With correct data at your fingertips, you can jump on opportunities before they pass you by and catch downward trends before they become catastrophes. Investing in outsourced bookkeeping services now can pay off in countless ways down the road.

13. Ignoring Feedback

Seek regular feedback from your franchisees about their finances. Having honest conversations with franchisees can help you build positive relationships, gather important information, and spot problems while they’re still small.