Franchise Chart of Accounts Management: Guide to Standardization & Multi-Unit Reporting

Imagine recording financial transactions for not just one single business unit, but the whole franchise unit. While this may seem daunting at first, franchise chart of accounts management can be done optimally to ensure all reports are well-organized.

A good franchise accounting system can help both franchisors and franchisees keep track of financial performance and expenses with ease. This is where standardized CoA for franchises plays to the business.

Both franchisor and franchisee need to understand the benefit of having an optimized chart of accounts (CoA) for multi-unit reporting. Hence, this guide will explain the benefits and best practices of optimizing an effective and consistent multi-unit franchise report.

Benefits from Standardization Chart of Accounts for Franchise

As a reminder, a chart of accounts is a practice of recording all financial-related information, usually from the same franchise. Things like revenue, expense, asset, equity, and even liability, are all recorded in a categorized list.

Judging from the description above, it is clear what kind of benefits franchisors could get from having a standardized CoA for franchises itself. Naturally, the benefits must be related to finance, such as:

Consistent Financial Reporting

In business, consistency is key, and this goes even to the bookkeeping practices as well. Standardizing chart of accounts helps franchisors to consistently have accurate financial reports across all units in the franchise.

But what’s the benefit of achieving a franchise financial reporting consistency on its own?

• Comparing financial data across franchise units becomes much easier. Franchisors can track performance and issues—no matter how many business units—effectively.
• Reducing human error thanks to the accurate chart of accounts. Given how many business units a franchise can have, mistakes in financial reporting need to be minimized with a better franchise chart of accounts management.
• Helping franchisors to make informed business decisions. More accurate financial data across all franchise units will provide more accurate decision-making.

Simplified Consolidation

Analyzing a financial report across all franchise units is no easy matter, especially if they are all disorganized. Obviously, the solution for this is to consolidate all the financial data to make it easier to digest.

With the help of a standardized chart of accounts, it will be easier to compile all financial information to assess the overall health of the business. A consolidated reporting franchise CoA, in return, helps stakeholders to access this financial report with no issue.

The benefit from it? Franchisors can increase credibility and gain trust from stakeholders with simplified consolidation. This is mainly because the financial report will be more accurate and transparent.

Accurate Royalty Fee Calculations

To keep using the franchisor’s brand, every franchisee has to make a recurring payment to the franchisor, according to their license agreements. However, managing all the royalty fees is difficult, since each franchisee may pay a different amount of fees.

The issue is there can be some inaccuracies while calculating royalty fees. Especially for the situation where the royalty fee calculation is based on a specific percentage of sales revenue, and each franchise unit has reported a different sales revenue.

Some kind of royalty fee tracking is necessary, which is exactly what standardized chart of accounts do. A franchise royalty fee tracking CoA ensures the business to stay profitable by having more accurate calculations.

Effective Benchmark Process

Franchise benchmarking has been used for improving large-scale business. However, to do it efficiently, franchisors need to have a standardized CoA for franchises, which includes all necessary financial data.

For example, intercompany transactions franchise CoA will enlist all the royalty fees, expense allocations, and loans between the franchisor and the franchisee. This can help franchisors to benchmark the business, which in turn:

• Find out which areas from the franchise that require an improvement. Franchise benchmarking lets franchisors know what the franchise’s biggest strength and weakness are. 
• Maintain a solid competitive positioning in the similar industry. Franchisors can use the franchise’s biggest strength from benchmarking to attract more target audience. 

Implementing and Maintaining Standardized Franchise Chart of Accounts

Knowing the benefits, it is understandable that organizing a franchise chart of accounts management can be challenging. Therefore, here are best practices to implement and maintain them to be a good financial accounting system:

• Setting up the chart of accounts by using groups and numbers. This will help franchisors to organize the chart of accounts across all franchise units. 
• Utilize the right accounting software for CoA. For example, QuickBooks CoA for franchise locations or NetSuite multi-entity CoA franchise management.
• Review franchisee compliance and performance regularly. These can help franchisors to identify trends, compare performance, and mitigate potential financial issues.
• Track royalty and financial reports accurately. By doing this, franchisors can minimize the risk of mistakes in the franchise chart of accounts management.

Chart of Accounts Considerations for the Franchisor

Chart of accounts matters for the franchisors because it allows them to control the franchise in the right direction. With that in mind, franchisors must consider these elements to create an organized chart of accounts:

• Standardization across all franchise units. Standardized CoA allows benchmarking key performance indicators (KPI) and makes financial reporting easier.
• Royalty fee and other funds tracking. Franchisors need to separate and track them regularly to ensure transparency in the chart of accounts.
• Accurate categorization to follow regulatory compliance. This will allow franchisors to properly report financial data, minimize potential mistakes, and comply with financial reporting standards.

Chart of Accounts Considerations for Multi-Unit Franchisee

As a franchisee that controls multiple franchise units, a chart of accounts helps them to manage the complexity of multi-unit reporting. Naturally, the chart of accounts for multi-unit franchise accounting CoA involves:

• Clear numbering system to easily identify multiple units. Sorting accounts from multiple locations can help franchisees to organize multi-unit reports.
• Intercompany transactions in multi-unit franchisees. Franchisees have to track any shared resources between franchise units, ensuring no mistake when calculating a franchise unit’s expenses.
• Location-specific accounts to track each franchise unit. This can help franchisees to track performance, expenses, and inventory, for each franchise unit on more specific locations.

Conclusion

Implementing CoA best practices for franchisors and franchisees is vital to ensure the longevity of the business. By having a standardized chart of accounts, franchises can stay on top of the business, thanks to the robust financial system as a backbone.

Given the challenge of implementing them, franchisors can also opt in to Global Virtuoso’s bookkeeping outsourcing service to easily manage a chart of accounts. Contact us today to organize your franchise chart of accounts management!