Franchising can be a profitable and fulfilling business, but not if your money isn’t managed correctly. In this article we cover the top 5 franchise accounting mistakes that new franchise owners make and how to avoid them so you can protect your investment and put your franchise business on a strong financial footing.
Whether you’re a first-time franchisee or you have your first franchise, this guide is for you. You can’t have enough of actionable advice and insights that could save you (thousands!) by avoiding mistakes you haven’t really even thought of yet.
As the leading team of specialist franchise accountants, The Franchise Accountants (TFA) have the privilege of working with hundreds of franchisees throughout Australia. We’ve been doing it for over 16 years, and because of that, we have a unique, detailed view of the most common franchise accounting issues impacting franchisees of a wide range of businesses—and just what you need to do about it.
Mistake #1: Mixing Personal and Business Finances
A regular franchise accounting mistake is treating both business and personal finances as one. This may not seem like a big deal at first, but it can be a real pain when it comes to tracking operating expenses, determining cash flow, and generating financial statements.
One of the mistakes first-time franchisees make is failing to know the significance of opening a business account. That would make it more difficult to reconcile accounts and categorise expenses while also leaving no room for doubt in reports and, in the worst case scenario, tax audits. What also can lead to mistakes are the mistakes in the preparation of GST or PAYG obligations.
The fix? Set up a separate business bank account and keep track of your income and expenses using bookkeeping software. This will make accounting easy, keep you informed on the financial health of your franchise, and allow you to make informed decisions.
We can help you avoid unnecessary mistakes, book a session with us now.
Mistake #2: Underestimating Startup Costs and Budgeting Poorly
Startup costs can easily be underestimated if new franchise owners fail to plan properly. This may cause immediate cash flow problems and add unnecessary strain to your operations. Initial costs might include equipment, rent and utilities, franchise disclosure fees, and training and marketing costs.
A franchise business plan template is required for developing a franchise business budget. A lot of franchisees launch without setting aside any extra money for any kind of surprises that might come their way (which sure enough they will), leaving them strapped for cash early on in the life cycle of the business.
To help minimise your risk of running into trouble down the road, partner with a financial advisor or a franchise accountant who’ll be able to keep the big picture in focus by showing you what your initial investment and ongoing costs look like. A properly constructed budget helps you predict cash flow, allocate resources effectively and give your franchise the foundation on which it can build towards growth.
Mistake #3: DIY Bookkeeping Instead of Professional Help
It might sound like a thrifty idea to do your bookkeeping in-house, but doing so creates inefficiencies, misses deadlines, and makes mistakes that can cost you money. Poor bookkeeping will lead to mistakes in your payroll or other accounting obligations as a franchise.
DIY bookkeeping can be particularly dangerous if you’re not familiar with the specific reporting requirements laid down by your franchisor. Many franchise owners have found themselves off the hook until the last minute, suddenly realising they have overlooked filing crucial compliance requirements or underreported taxes. Even worse, errors in financials can trickle down to royalty payments, financial reviews, or even jeopardise your agreement.
The solution? Leave the bookkeeping to the professionals. What can help is outsourcing to experienced franchise book-keepers and utilising cloud accounting products like Xero or MYOB. This way you can save time and stress. It also provides a real-time window into how your franchise is performing financially and enables you to concentrate on developing other areas of the business.
Don’t attempt bookkeeping if you don’t know anything about it. Contact us to help you with your books today.
Mistake #4: Not Reconciling Accounts Regularly
Franchisees know how quickly those daily transactions can add up. Without that regular reconciliation, it can be hard to tell where that money is going, and you might overlook fraudulent transactions or double charges. Over time, this can distort your financial reporting and impact your ability to responsibly grow your franchise.
This can be fixed by ensuring that you review and update your books regularly. Employ accounting software to help streamline this process automatically—for both automated feeds and monthly reminders. Not only does this save time, it helps keep your financial house in order and audit-ready.
Need help scheduling your accounts? We can help. Talk to us right away.
Mistake #5: Ignoring Cash Flow Forecasting and Financial Planning
Most often, franchisees rely only on sales and don’t consider the fact that they need to forecast cash flow and plan accordingly. But knowing your cash position isn’t just about how much money you have right now—it’s about forecasting how much you’ll need to pay next month’s bills and making plans to grow.
A lot of franchisors require their franchisees to meet certain performance standards, and if you’re not able to accurately forecast, you can come up short. In the same way, failing to take into account future tax obligations, payroll costs, and future investment opportunities can bog down momentum and stall growth.
Bring in financial professionals to help with budget planning, cash flow projections and long-term strategy. With the right backing and due diligence, you’ll be able to spot the mistakes to sidestep, reduce financial risk and create a thriving business.
Final Thoughts: Set Your Franchise on the Right Track
Having a franchise is a major investment, and as with any investment, its success can hinge on the quality of your financial system. These five popular franchise accounting mistakes can be easily avoided with proper support and with a little preemptive planning.
By taking the time to set up personal accounts, understanding real-world start-up costs, not wasting your time doing the books by yourself, keeping the books updated, and running cash flow projections, you’ll not only avoid the most common traps —you’ll build a stronger, more profitable franchise business.
At The Franchise Accountants, we know what makes franchising different. Our customisable services make your finances easier, faster, and more secure from the bottom up. No matter if you are a first-time franchisee or already in business, we will save you time, reduce your stress and let you concentrate on the important things which is running and growing your successful business.
Ready to position your franchise for success? Contact us today and see how we can help you stay out of trouble and on the road to long-term financial well-being.
