As your franchise operations have expanded, have your accounting systems kept pace?
A good litmus test is the degree of confidence you have in each location’s financial reports. If you can’t trust that your franchise’s financial reporting accurately reflects profitability, adding another site will likely only make the picture muddier.
Most franchise operators use a POS system or internal reporting to gauge gross revenue, as franchisors typically require data on key metrics such as customer counts, table turns, and production per hour. But without accurately recording costs and assigning them to the right location, you can’t see the full picture of profitability. This leaves you without the clarity to make important business decisions, such as where to focus resources to drive growth.
Is Your Franchise Financial Reporting Holding You Back?
Legacy systems are often at the root of muddled reporting. Your accounting system (may have been sufficient in the early days, but is now generating more confusion than clarity.
Here’s another common scenario: When you started adding franchise locations, you kept paying all your payroll and other bills out of a single bank account. Setting up a separate bank account for each location requires a modest upfront investment of time, but pays dividends by making cost allocation seamless and your reports far more reliable.
Here are some other signs that your accounting hasn’t kept pace with your growth:
- You’re relying on your POS system as your primary accounting tool.
- You can’t quickly produce a P&L for a single location without manual assembly.
- Expenses are regularly miscategorized or unassigned to a location.
- You discover errors only when preparing reports for the franchisor, a lender, or an investor.
- Your accounting team (or you) works overtime untangling shared expenses.
Case in Point: Restaurant Levels Up Accounting to Meet Investor Expectations
To understand how a lack of visibility into location-specific financial performance can cost you, consider Rob, a quick-service restaurant owner with sights set on expansion. He had recently entered into discussions with an institutional investor to add a fourth location, and he reached out to Copeland Buhl to prepare the financial statements required for due diligence.
After Copeland Buhl compared the POS reports to the cash in the bank account, what we discovered surprised Rob. The updated profit and loss statement for one of his locations showed labor costs significantly above what he thought them to be. The root cause was an overreliance on the point-of-sale system, compounded by a procedural oversight. As employees’ hourly rates had steadily increased, the payroll system didn’t sync with the POS system, and no one had updated the hourly rates in the POS system.
If the investor’s due diligence team had uncovered the error in the financial reporting, they would have lost confidence in the restaurant. With a new appreciation for the importance of reliable multi-location reporting, Rob worked with the Copeland Buhl team to adopt a monthly close process that allocated costs accurately by location and produced financial reports that clearly showed both consolidated and location-specific results.
Do You Have the Numbers You Need to Scale Your Franchise?
Before you pursue expansion, consider whether you have the information you need to make the best decisions. Ask yourself whether you can readily access location-specific key performance indicators, such as:
- Labor costs, including wages, benefits, and overtime
- Cost of goods (e.g., food cost, inventory, equipment)
- Vendor spend (e.g., delivery, janitorial services)
- Franchise fees and ad fund contributions
Without complete confidence in the accuracy of these numbers, it’s difficult to know where you’re achieving the best cost and labor efficiencies and where you’re leaving money on the table.
Beyond knowing your own KPIs, it’s worth benchmarking them against franchisor averages or industry standards. If your food cost is running 32% while the system average is 27%, that’s a strong signal that something needs to change. You can only act on that insight if your location-level data is reliable.
Scale Your Multi-Unit Franchise with Confidence
If you’re not confident in the accuracy of your financial reporting, consider bringing in an Outsourced Accounting (OA) team.
Just a few of the benefits multi-unit franchisees experience from partnering with an experienced OA team include the ability to:
- Cut through the noise to the specific KPIs that reveal which locations are most profitable, enabling you to hold management accountable for performance.
- Report accurate, location-specific numbers your franchisor and investors need in a reader-friendly format.
- Gain access to a business advisor who will go beyond reporting to help you gain perspective on what your numbers mean and how to improve.
- Make smart growth decisions, like identifying the manager on your current team who is best suited to lead a new location.
- Step back from daily firefighting and lead your business with the confidence that comes from knowing your numbers.
Outsourced accounting isn’t just for large operators. Many franchisees find that bringing in an OA team makes the most sense right at the point of adding their second or third location, before financial reporting problems have a chance to compound. If you’re preparing for that next step, now is the right time to make sure your franchise financial reporting is solid.
As you expand your franchise operations, contact Copeland Buhl for Outsourced Accounting to reinforce the foundation you’ve built.
