Financial Reporting Do’s and Don’ts
Sound financial reporting will help motivate all those involved to implement strategic processes.
Managing finances within a franchise system is imperative to its success though it can be a challenge to achieve such harmony between franchisor and franchisee. Franchisors struggle to get all members of the system to report consistent, accurate information and deliver the information in a timely manner each month. There’s a reason for this: most small-business owners try to take care of bookkeeping on their own, despite lacking the necessary expertise and time, the majority of which is dedicated to operating their businesses.
AccountingToday.com recently reported that of the more than 30 million small businesses in the United States, 74 percent do not employ full-time or part-time accounting help. BookKeeping Express recently began to partner with fellow franchisors through its Franchisor Express Program and is hearing firsthand the need for consistent financial reporting that surprisingly is not the norm among too many entrepreneurs.
Franchisees have embraced online tools for years for their lower dollar cost, but without sufficient accounting proficiency, they spend valuable time trying to figure out tasks in desperate need of human guidance. The benefits and reasons to employ best practices are obvious and endless. Understanding the importance of sound financial reporting to a franchise organization will help motivate all those involved to implement strategic processes.
Growth. This should be a no-brainer. Franchise organizations that are financially healthy are more capable of growing at a sustainable rate. Franchisors can more accurately estimate unit economics and in turn, determine how they can grow, what kind of franchise prospects they need and their capacity for new investments.
Data Analysis. The tremendous data and knowledge that comes from having in-depth, detailed reports down to the unit level can make a significant difference. The value to the franchisor, and in turn the franchisees, is immeasurable as it gives a complete snapshot of how the organization is operating.
Support. When franchise owners consistently manage their books and the franchisor consistently reviews and evaluates across the system, the company is better able to support its partners. If a location is struggling, the franchisor can more accurately make suggestions to improve the bottom line. Likewise, when franchisees are successful, the franchisor can easily see the reasons why, from a financial standpoint, and share best practices within the system.
Financial Integrity. Implementing stringent financial reporting prevents audits and internal fraud (at all levels – from the top down to employees within the individual franchise location), but it also allows small businesses to withstand tax season and take advantage of tax credits without the anxiety.
How to attain the desired aforementioned traits within a franchise organization requires both the franchisor and franchisee to align. There is myriad advice floating around, but the following are the most important do’s and don’ts relevant to both the franchisor and the franchisee.
- Do maintain records throughout the year: This may seem like an obvious piece of advice, but at both the franchisor and franchisee level, it’s crucial to save and organize all records throughout the entire year. Categorize receipts (utilities, supplies, contract labor and rent) and review the data on a monthly basis. It’s also beneficial to create a check-and-balance system between a designated CPA and bookkeeping provider. Working with a reliable partner throughout the year will allow franchise owners to run their businesses without worrying about missing important documentation should an audit occur.
- Do use cloud-based technology: While there are still some skeptics, the experts have proven that the benefits of cloud-based technology far outweigh any potential negatives. By using this type of system, franchisees and franchisors can access records at all times regardless of location. Cloud-based solutions are also a safeguard against such disasters as fires, weather-related or otherwise, and can prevent a total loss of critical data.
- Do consider a system-wide solution: Incorporating a system-wide tool to manage financial reporting throughout a franchise organization can significantly improve the bottom line – for the company as a whole and from a unit-economics perspective. Our new Franchisor Express program is designed specifically to align both franchisor and franchisee through a cloud-based dashboard. The service seamlessly integrates data across the system and hosts the necessary tools all in one, centralized platform.
Finding a platform that centralizes all financial reporting tasks makes it far easier to understand and evaluate the business.
- Don’t rely solely on software platforms: Recommending a software platform, while certainly helpful and necessary, is not enough on its own. To reach an organization’s fullest potential and achieve true financial soundness, there must be human guidance and advanced technology working seamlessly together. As a franchisor, look for a franchise-focused provider that has both of these components – one that can provide a support team at the corporate or headquarters level and at the local franchisee level, but whose core platform is cloud-based and accessible.
- Don’t go it alone: As the aforementioned statistic implies, too many small-business owners try to maintain the accounting piece of the operations puzzle on their own. Unless the entrepreneur is a former CPA or has a solid financial reporting background, it’s imperative to find a partner to assist with this “weakness.” Most owners don’t have the time to figure out their own accounting, and it takes away from focusing on growing the business.
- Don’t use separate tools: There are many options for small-business owners when it comes to managing the books. Many of these are great tools and more than adequate, but only at one element of financial reporting. Franchise owners lean toward using a variety of systems based on preference and ease of use: separate providers for payroll, general ledger, cash management, reporting and points of sales. However, few if any are integrated. Finding a platform that centralizes all financial reporting tasks makes it far easier to understand and evaluate the business.
Greg S. Jones is the founder and chairman of BookKeeping Express, a national franchise focused solely on bookkeeping and financial intelligence consulting for small-business owners and franchises. Jones is also a multi-unit franchise owner of Five Guys Burgers and Fries. Find him at fransocial.franchise.org via the directory.