Outsourced Accounting for Franchise: How to Evolve with Your Financial DNA

What if the secret to unlocking your franchise's true potential isn't hidden in your marketing strategy or operational efficiency but buried deep within your financial DNA?

Every month, franchise owners face the same crushing reality: they're drowning in spreadsheets, compliance deadlines, and financial reports whilst their competitors seem to effortlessly scale and prosper. The difference isn't luck - it's adaptation to change.

The process of setting up a franchise is often engulfed with a storm of procedures. There are around 1,344 franchise systems in Australia, incubating an estimated 98,000 units. This ecosystem generates a turnover of over $184 billion, backed up by 598,000 people.

Your accounting practices determine how your business will develop, adapt, and grow in the competitive market.

Understanding Your Financial DNA

Your financial profile is unique to you with operational activities, growth trajectory, and industry-specific challenges. Whether you are a franchisor overseeing a complex network of business units or a franchisee associated with an established system, your financial code requires specialised attention.

Flourishing in a competitive market comes with distinctive challenges. Numerous businesses can be extended into the franchise model with the right vision and aligned strategy.

Why Your Franchise Needs Outsourced Accounting Now

As a franchise business owner, your financial DNA thrives on replicability and consistency.

A foundation built on adaptation and adoption leads to positive evolution. Adapting to the changing environment of a customer-centric market whilst adopting new technology for automation gives you a head start in your journey.

Your business faces a dilemma: redirect resources towards increasingly complex financial management or concentrate on core business growth. This is why outsourced accounting has become a competitive advantage for most successful franchise operations.

Struggling with cashflow management and regulatory compliance are clear signs – you need to re-strategise and partner with an expert. A survey by DataRails suggests that 81% of CFOs believe they are burdened by the heaviest workload among C-suite roles.

This implies that such responsibilities go beyond the traditional financing role. Instead of multitasking your way to burnout, you should shift the focus to business-level strategies.

Without specialised financial expertise, you are likely experiencing:

Delayed financial reporting with direct impact on decision-making

Inconsistent accounting practices across multiple locations

Compliance gaps in a complex regulatory environment

Chaotic financial operations while scaling growth

Limited analysis of unit-level performance metrics

The cost of these challenges is not just financial; it is the opportunity cost calling for better business decisions.

The Unique Financial Challenges

For Franchisors:

Complex Revenue Recognition: Applying IFRS 15 standards to multi-element franchise agreements where performance obligations span initial training, territory rights, and ongoing support.

Multi-entity reporting: Integrating performance across multiple locations while maintaining individuality for comparison.

ACCC (Australian Competition and Consumer Commission) Franchising Disclosure Obligations: As a franchisor, you need to maintain and disclose stringent transparency standards. This means you are required to prepare and provide a comprehensive disclosure document. This needs to be updated annually.

Non-compliance leads to penalties and legal actions, which can significantly increase the costs.

International tax considerations: If you are among 32% of Australian Franchises delving into international markets, you need to manage transfer pricing rules and cross border royalty treatments.

Australia has entered into Double Tax Agreements (DTAs) with many countries. This allocates taxing rights between the two countries for different types of income.

Brand value protection: As a successful franchisor, you need to ensure consistent financial practices that preserve system integrity.

Additionally, all the brand IPs need to be successfully replicated throughout the franchises. Thus, to maintain your financial code, you need to be diligent.

For Franchisees:

Dual reporting requirements: As a franchisee, you need to fulfil dual reporting requirements. This includes reconciling franchisor-specific reporting with ATO obligations, which means that you have to prepare and submit financial and operational information to two distinct entities.

Performance obligation accounting: The primary responsibility of implementing IFRS 15 lies with the franchisor, but managing the time of revenue recognition for customer loyalty programs and gift cards is to be handled by the franchisee as well.

Cash flow pressures: This is a balancing act. As a franchisee, you need to maintain enough cash flow to meet unexpected sales, operational costs, and royalty payments.

Long spells of poor cash flow management can put the future of the franchise unit at risk in the long term.

Territory-specific benchmarking: Evaluating your performance against comparable franchise units – either delimited by a similar geographical area or demographics. This highlights effective strategies and areas of improvement.

Exit planning considerations: You will have to make your exit plan viable and lucrative. You need to understand the financial metrics that impact your goodwill valuation. When you plan an exit, various intangible aspects such as profitability, customer retention rates and loyalty, and timing of exit play an important role.

Evolve With the Transformative Power of Outsourced Accounting

1. Navigating the Tax Landscape of Australia

The complex tax environment presents unique challenges for a franchise business. Outsourcing a partner will help with:

STP 2 (Single Touch Payroll 2) Compliance management: Detailed management and reporting for payroll information to the Australian Taxation Office (ATO) in specific detailed format with every pay run. This report is to be submitted by all the franchisees and the franchisor's head office.

FBT (Fringe Benefits Tax) Optimisation: This tax is to be paid by employers for certain benefits given to employees. The franchisors and franchisees have to strategically structure such benefits in a way that does not trigger the FBT or transfers the burden to employees (in the form of employee contribution).

Since FBT rules are complex, it requires careful planning. Non-compliance leads to significant penalties and audits from the ATO.

Division 7A Protection: This provision prevents private companies in Australia from distributing profits to shareholders or associates without paying the appropriate tax.

Certain common mistakes cause significant tax liability. To prevent such liabilities, you need to keep meticulous records of inter-entity loans.

GST Grouping Advantages: Grouping GST registrations simplifies BAS (Business Activity Statement) lodgments. It also reduces errors while processing internal GST and increases administrative efficiency.

Small Business CGT (Capital Gains Tax) Planning: Maximising available tax concessions for qualifying franchise units.

With proper planning of the sale of assets and transferring ownership, significant tax reductions can be availed. The rules of availing the concession are stringent, hence compliance and better understanding will maximise the benefit.

2. Significant Cost Savings:

To evolve through the storm of operational and administrative costs, outsourcing accounting can be a beneficial decision.

Availing outsourced accounting services leads to tangible financial benefits. Costs for staffing, recruitment, and training purposes are reduced by a great margin while adaptation of new technology and optimisation of office spaces are eliminated.

3. Enhanced Business Focus:

You need to focus on the business strategy while managing an interconnected web of franchises where key decisions can start a chain reaction – which can cause positive or difficult changes.

Directing your time and money on revenue generating initiatives rather than back-office functions is a strategic decision that you need to make.

Why Delaying Outsourcing Accounting Damages Your Business

You are assigned multiple roles every month. This increases the manual load on you or your team members, leading to burnout, chaotic accounting, and faulty compliance.

A single reporting error can result in ATO penalties, and non-compliance may incur huge tax liabilities and damage to reputation. When each entity is bound by a single franchisor, consistency across all the accounts should be the utmost priority.

Due to leadership fatigue, many investment or scalable opportunities are missed. Tax exemptions or benefits can easily be overlooked while managing the accounting function in-house.

Your Financial DNA should have the competitive edge of evolving as a thriving business by streamlining your finances as a franchise business owner.

How to Switch to Outsourced Accounting

The current trend among the majority of franchise businesses is to allocate their accounting function to an outsourced partner.

Offering better technology adoption, digital transformation, strict compliance, and tax regulation, an outsourced partner truly elevates your business.

How do you ensure that your franchise business successfully transitions into outsourced accounting?

In Conclusion:

The most successful franchise businesses are making the switch – to evolve into efficient models. Nearly 80% of Aussie businesses outsource their services, with nearly half of them outsourcing their accounting function.

The most overlooked benefit of outsourcing your accounting is the work-life balance you gain. Overwhelming responsibilities and never-ending tasks may cause severe burnout. To prevent such implications, your focus should only be your business goal. This ensures overall productivity, which is not just limited to you, but also extends to your team, your franchises, and franchisees!

Your financial DNA should have a competitive edge for evolving.

We are a testament to expert accounting solutions and innovative services.

Partner with us to start your journey of outsourced franchise accounting.

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Author

Martin Conboy

Martin is well recognised as one of the leading voices of the outsourcing industry and its role in facilitating outsourcing success throughout the Asia Pacific. Martin was voted into the top five most influential and respected people in the global call centre outsourcing industry in November 2014. An experienced international executive with demonstrated commercial insight, and strong interpersonal and networking skills within the outsourcing, recruitment, customer service, contact centre, logistics and telecommunications industries in Australia.

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