“Bookkeeping is the practice of organizing, classifying and maintaining a business’s financial records. It involves recording transactions and storing financial documentation to manage the overall financial health of an organization…When an effective bookkeeping system is in place, businesses have the knowledge and information that allows them to make the best financial decisions.” (Forbes)
While bookkeeping and accounting go hand-in-hand, bookkeeping is the process of recording and organizing financial information while accounting analyzes and interprets the data. Bookkeeping tasks include documenting payments and expenses, recording debits and credits, sending invoices and processing payments, preparing financial statements, balancing a ledger, completing payroll, and more.
Bookkeeping is as important for franchises as it is for any other business. It’s crucial that each franchise location maintains accurate financial records in order to establish a budget, plan for the next fiscal year, prepare for tax season, and financially succeed as a business. Fortunately, franchisors help with setting up the bookkeeping process with already established procedures, training programs, recommended software, expert support, financial reports, and more.
5 Things to Consider When Setting Up Your Bookkeeping System
#1 – Choosing the Right Bookkeeping Software
In general, businesses use an electronic bookkeeping method, whether that’s a simple spreadsheet or a specialized software. Utilizing a bookkeeping software can definitely make things a lot easier. While there are various software options available to franchise owners, a few questions to consider when deciding which one to use include:
- Is it user-friendly? You don’t want software that’s overly complicated. Rather, choose one that is easy to use and navigate.
- Is it scalable? Avoid using software that your business could “grow out of”. Choose one that will grow with your franchise and be able to accommodate an increase in locations and transactions.
- What features & integrations are included? See if the software offers conveniences such as automated invoicing, expense tracking, payroll management, the ability to integrate with other business tools, and more. Consider what would benefit your business the most.
- How secure is it? Of course, you don’t want a bookkeeping software that doesn’t come with robust security features such as encryption, regular backups, and user access controls.
- Is there customer support available? Choose a software company that you can rely on to be responsive when you have a question or if there’s an issue that needs to be resolved.
#2 – Setting Up Your Charts of Accounts
The charts of accounts (COA) “is an organizational tool that lists by category and line item all of the financial transactions that a company conducted during a specific accounting period” (Investopedia). It’s important to strategically set up your COA in order to make bookkeeping easier in the long run. A few things to consider include:
- Customizability – You want your COA to incorporate the unique aspects of your franchise, which might include specific categories for franchise fees, royalties, advertising, and more.
- Organization – Make sure the COA uses a logical structure such as grouping similar accounts together for easier analysis.
- Consistency – If you run multiple franchise locations, you’ll want to maintain uniform account structures. This allows for consolidated reporting and comparisons.
- Regular Reviews – It’s important to periodically review and update your COA as your business evolves so that it remains useful.
- Compliance – Ensure your COA complies with industry standards and legal requirements.
#3 – Integrating POS Systems & Other Sales Tools
Of course, you should ensure that you choose a bookkeeping software that is compatible with your POS system to enable seamless data transfer. A few other aspects to consider include:
- Real-time data sync between the POS system and bookkeeping software to keep financial records current.
- Utilize sales reporting features of the POS system to produce reports on sales trends, product performances, and customer preferences.
- Integrate inventory management with the POS system to track stock levels and manage product restocks.
- Provide training for the staff on how to use all of the integrated systems along with troubleshooting support and system updates.
#4 – Maintaining Consistency Across All Franchise Locations
Consistency in service and brand image is a core element of franchising, and bookkeeping is not excluded from this. You should set up the following:
- Standard Operating Procedures (SOPs) for bookkeeping across all locations, which includes how to record transactions, handle expenses, and generate reports.
- Centralized bookkeeping management to achieve uniformity and limit discrepancies.
- Regular bookkeeping training for franchisees and staff on best practices and software.
- Audits and reviews to ensure compliance and identify ways to improve.
- Communication channels to provide bookkeeping assistance to franchisees.
#5 – Understanding Compliance & Taxation
A successful bookkeeping process must adhere to applicable regulations. Consider the following:
- Local Regulations – This includes tax and other jurisdiction-specific requirements.
- Sales Tax Management – Execute a system to calculate, collect, and remit sales taxes.
- Franchise-Specific Taxes – These include franchise taxes, business licensing fees, and royalty payments.
- Record Keeping – Keep organized records to support tax filings and compliance audits.
- Professional Advice – Consult with tax professionals and accountants with franchise experience to ensure accurate and compliant tax management.
4 Essential Bookkeeping Practices That Set You Up For Success
Bookkeeping is a multi-faceted effort to maintain a business’s financial health and transparency. A few core practices to implement include:
#1 – Recording daily transactions
- Sales – Document each sale including cash, credit card, and online transactions in order to accurately track revenue.
- Expenses – Log all expenses both small and large in order to identify spending patterns and ways to reduce costs.
- Bank reconciliation – Regularly compare the franchise’s financial records with bank statements and quickly resolve any discrepancies in order to avoid fraud and errors.
- Consistency and accuracy – Have a routine for recording transactions and double-checking entries at the same time each day. Reducing the likelihood of errors will make financial analysis simpler.
#2 – Managing Accounts Payable & Receivable
It’s important to maintain accurate records regarding accounts payable and accounts receivable to ensure profitability.
- Accounts Payable (the payments your business owes)
- Invoice processing – Track all incoming invoices and match them with purchase orders to verify accuracy.
- Payment scheduling – Ensure invoices are paid promptly to avoid late fees and maintain a good relationship with suppliers.
- Expense categorization – This will help you analyze spending and find ways to reduce costs.
- Accounts Receivable (the payments your business expects to receive)
- Invoicing customers – Promptly deliver invoices that detail the service and/or products to ensure timely payment.
- Payment tracking – Monitor incoming payments and follow-up on overdue invoices. Have an effective collection strategy to ensure consistent cash flow.
- Customer relations – Maintaining good communication with customers can improve collection rates along with customer satisfaction.
#3 – Payroll Processing & Management
Having an effective payroll system is key to successful bookkeeping. This includes:
- Accurate Time Tracking – You’ll need a system that can reliably track employee hours and accurately calculate payroll. This might include time clocks, biometric systems, software-based solutions, and more.
- Regulatory Compliance – You also want to make sure you adhere to current payroll regulations (federal, state, and local) to avoid penalties. These include minimum wage laws, overtime rules, tax requirements, and more.
- Payroll Taxes – Your payroll process should also be able to accurately withhold the appropriate payroll taxes for each employee.
- Employee Benefits Management – You also need to manage employee benefits including health insurance, retirement plans, and paid time off (PTO).
- Payroll Software – Having payroll software integrated with your bookkeeping system will streamline the payroll process, reduce errors, and save time.
#4 – Tracking Inventory & Supplies
Another important element of bookkeeping is effectively monitoring inventory and supplies. There are several components to this including:
- An inventory management system that tracks stock levels, orders, and deliveries with real-time data.
- Regular inventory audits to verify your records. It’s important to reconcile discrepancies between the physical count and the recorded amount.
- Building a strong relationship with suppliers to negotiate favorable terms and ensure timely delivery of inventory.
- Track inventory costs in order to effectively manage expenses. Identifying slow-moving inventory can provide ways to minimize costs and optimize stock levels.
- Monitor inventory turnover ratio in order to maximize sales while minimizing excess stock.
Outsourcing Bookkeeping – Is it Worth It?
Pros to Outsourcing
- Cost Savings – This is especially true for small to medium-sized franchises that would save on salaries, benefits, and overhead costs of full-time bookkeeping employees.
- Expertise and Experience – Professional bookkeeping firms have specialized knowledge and they stay updated on the latest regulations and best practices.
- Time Efficiency – Outsourcing bookkeeping allows franchise owners more time to focus on running the business, including sales, marketing, customer service, and more.
- Scalability – A bookkeeping service can easily scale with a growing business without the hassle of hiring new employees.
- Advanced Technology – Outsourcing keeps franchises from having to invest in accounting tools since bookkeeping firms typically use advanced accounting software.
Cons to Outsourcing
- Less Control – Naturally, outsourcing gives up some control over the day-to-day financial operations, which is an issue for those who prefer to have direct oversight.
- Communication Challenges – An external bookkeeping team can also lead to communication issues, especially if both parties are in different time zones.
- Security Risks – There’s always a risk with sharing financial data with an external provider, so it’s vital to be sure that the bookkeeping firm has robust security measures.
- Dependency on Provider – It’s always possible that a bookkeeping firm will experience changes such as staff turnover, technical issues, or anything else that might impact service quality.
- Initial Setup Time – Setting your business up with an outside bookkeeping firm will require time and effort to coordinate and transfer existing financial data.
How to Choose a Reliable Bookkeeping Service Provider
Like with any service, it’s important to take the time to evaluate your options and choose the best fit. There are several aspects to consider when looking for a reliable bookkeeping service:
- Research and Referrals – What do online reviews have to say? Are you being referred to them by people you trust?
- Credentials and Experience – What is their track record? Who do they have on staff at the firm?
- Service Offerings – Do their services align with what your business needs?
- Communication and Support – Can you rely on the firm to communicate with you effectively? What other types of support do they provide?
- Security Measures – Can you trust the firm to keep your financial records and business details secure.
- Pricing Structure – Do they offer the services you need at a price you can afford?
Collaboration Between the Franchise & Outsourced Bookkeeping Teams
As with any partnership, here are a few tips for optimizing your relationship with an outsourced bookkeeping team.
- Establish Clear Communication Channels
- Set Expectations & Guidelines
- Leverage Technology & Share Platforms
- Use Secure Communication Tools
- Monitor & Review Performance
Interested in Owning a Franchise Business?
Learning about the day-to-day is a key factor when deciding whether to purchase a franchise, and bookkeeping is one of many facets. If you’re interested in pursuing franchise ownership, FranNet is here to help. Our expert franchise consultants will walk you through the process from finding the perfect brand to join to actually becoming a franchisee. Schedule your free consultation today to get started!