Franchise Reporting Errors We See Every Week

Franchise ownership provides entrepreneurs with an established business framework which includes brand awareness and help with daily operations. The franchise network of Georgia and other states across the nation face a major challenge because their franchisees cannot produce accurate financial statements. At CFO ATL, we work with franchise owners regularly, and we see the same franchise reporting errors every week. The mistakes which occur in this process result in wrong royalty calculations and create problems with regulatory compliance and financial stability and prevent businesses from expanding their operations.

Franchise owners need to identify their organization's common reporting mistakes because these errors affect their financial success and their ability to work well with their franchisor.

Misreporting Gross Revenue

One of the most frequent franchise reporting errors involves incorrect gross revenue calculations. The calculation of royalty fees and marketing contributions by franchisors depends on the total amount of gross sales. The incorrect reporting of revenue information leads to problems with regulatory compliance. If revenue is overreported due to accounting errors, franchisees may pay more than required.

Organizations need to perform ongoing revenue reconciliation between their point of sale systems and their merchant processing reports and accounting software systems. The process of reconciliation has become a major warning sign because it happens inconsistently.

Poor Chart of Accounts Structure

Franchise businesses need to maintain their financial information organized through regular and standardized financial classification systems. Franchisees tend to maintain obsolete or generic account charts which fail to meet their franchisor's reporting requirements.

Without proper account structure, expenses may be misclassified, cost of goods sold may be inaccurate, and profit margins become unreliable. The implementation of a standardized chart of accounts which matches your franchise model will provide precise financial records and improved financial visibility.

Failing to Separate Corporate and Franchise Fees

The practice of combining royalty fees with advertising contributions and technology fees and other franchise-related costs into a single expense category represents a frequent problem.

Franchisors typically require detailed breakdowns of these payments. The absence of separation between operations and finances creates difficulties for franchisees to determine their business expenses which creates problems for financial assessments and audit processes.

Inconsistent Payroll Reporting

Payroll stands as the most significant operational cost which franchises must manage. The accuracy of financial statements becomes compromised because payroll allocation errors and employee misclassification and labor percentage monitoring failures affect the data.