For today’s franchisor, accounting goes beyond producing a clean, accurate set of books for the franchise. The accountant and their team need to understand the numbers, not just produce them.
To run a franchise well means the financial people are skilled in a diverse range of finance functions that include cashflow management, strategic advice, reporting and stakeholder communication. Franchisors therefore need to carefully consider the combination of skills and experience they need in their finance and business advice team.
For most small businesses the typical accountant or bookkeeper takes a stewardship role of getting the books right. They will also liaise with the tax accountant. These things are vital for the risk management of the financial side of the business.
However, a franchise needs more than a clean, accurate set of books if they are to succeed in today’s franchising environment. Even for a franchise in start-up mode, the complexity of doing business in franchising means the financial team needs to have a holistic view of the figures, not just report on them.
But what do we mean when we say ‘understand the numbers’? Here are some examples of financial aspects of franchising that extend beyond doing the books.
Managing franchise financials
A start-up franchise will often face challenges managing medium-term cash flow. Up-front franchise fees provide a financial lifeline but need to be stewarded carefully so the franchise can survive until monthly royalty covers operating costs. The founder needs financial people with relevant experience to advise them through this stage of the journey.
Or consider the demands of managing a franchise advertising fund. Looking after a fund is not just about correctly accounting for the income and expenses. The franchisor also needs to report to franchisees in a meaningful way and help the advertising committee make informed decisions about spending. It means your finance people need to work with multiple stakeholders, not simply talk to other accountants!
Then there’s the question of what financial information to put in the disclosure document. The right financial people can help a franchisor make a well informed decision about the inclusion of historical sales and cost information. But to do this, the adviser needs to have a commercial understanding of the numbers and the business issues.
A franchisor also needs meaningful monthly financial reports. This means your accountant must not only record income and expenses in a timely way but also produce reports that are simple and transparent. The right person will connect the dots between different parts of the organisation, understand the numbers and communicate insights to the board.
Understanding franchise strategy
Accountants also have a role to play in strategy. While they are often left out of strategic discussions, the right finance person is vital when it comes to aligning business and finance strategy to grow the business or secure financing. To grow a franchise you need a finance specialist who can think about direction and resource deployment over the long term.
Looking out into the franchise network, someone also needs to think and advise about the use of accounting technology for franchisees, including the choice of apps and point of sale software. This means your financial person must be able to perceive things from a franchisee accounting perspective, and communicate with them.
These examples highlight the diverse range of skills and experience needed within the finance team of a franchise. Clearly a franchise needs more than an accountant who can balance the books.
In a large business the finance department typically includes a range of people to cover these needs. Smaller business in the non-franchise space often do well with an experienced financial accountant or bookkeeper plus an external accountant to do their tax and compliance work. But a franchise needs to draw on the skills of more than a general accountant. They also need people who understand the numbers and the financial issues, and can think and advise at a strategic level.
All this surely raises the question “Where can I find this person?”. The answer is that you won’t find all this in one person. The individual who excels in the operational or compliance side of accounting is a different person from the strategic thinker and communicator or the technology focused accountant. Most likely your finance team will be composed of a diversity of people within and external to your organisation.
For a franchisor, it’s vital that your accountant knows how the stakeholders will use the financials and what this means for the choice of internal staff and external advisers. If they truly understand the numbers, they will know it takes a team.