Retail Accounting

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What to consider when investing in a franchise

Investing in a Franchise

1.    Define your investment
Before you start to investigate franchising, you must establish the level of investment you can comfortably afford to make. One of the biggest reasons for business failure in the UK is the proprietor not having the correct levels of funding. Some banks specialise in franchising and are listed on the BFA website (, you may want to speak to them for advice.

2.    Does it suit you?
Far too many people forget to judge their own stability for a franchise opportunity, yet this mistake can lead to years of unhappiness for you and your family. You must consider whether a franchise suits you, your needs, your wants and your family. For example, if you are looking at the convenience retail industry then you may need to invest a lot of hours on evenings or weekends to meet the needs of your customers.

3.    Choose the industry sector
Carry out some market research, looking at what business model best suits you. Try to avoid fad industries, consider the boom/bust cycle and address any market or statutory changes. This form of commercial investigation is the easiest and cheapest exercise to conduct but far too many potential franchisees overlook it when investing in a franchise.

4.    Seek professional advice
Advice will come in three forms:
– Legal: From BFA approved solicitors
– Financial:  From BFA approved accountants and banks
– Commercial: From existing franchisees, the franchisor, the British Franchise Association and other industry bodies.

5.    Understand the franchise
Thoroughly research the franchise opportunity you are considering and try and get as much information as possible. Speak to the franchisor and franchisees and find out as much about the franchise as you can. They should be open and honest and will help you to make an informed decision.

6.    Evaluate the information
Objectively compare your options on paper using the standard questions and a formatted system. It often helps to seek outside assistance at this stage from someone who has not become emotionally involved in the research.
Remember: Franchises can be more successful than other business models but it takes a lot of hard work a determination to succeed.

Remember: Franchises can be more successful than other business models but it takes a lot of hard work a determination to succeed.


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Top 10 retail franchise accounting best practices

  1. Retail Franchise Accounting Best PracticeCloud based system – a cloud deployment reduces the total cost of ownership, lowers upfront costs, and provides a scalable and rapid deployment platform. Furthermore, it provides secure and instant access to data from any internet enabled device by franchisees, their accountants, territory/area managers and head office.
  2. A retail specific system – the system should be designed for purpose, the functionality and features should be focused on solving the unique challenges of retail franchise networks.
  3. Standardised and consistent reporting – all franchisees should utilise a standardised Chart of Accounts to ensure consistent reporting in order to facilitate benchmarking and data analysis across the retail franchise network.
  4. Special purpose vehicle for the franchise operation – to gain insight and transparency of the franchisee’s profitability and financial stability, the franchisee should operate the “franchise” business from a new legal entity.
  5. Monthly reporting – quarterly or annual reporting is insufficient to provide adequate support to franchisees. Therefore franchisees should prepare trading accounts, P&L and balance sheets on a monthly basis in a common format as prescribed by the retail franchisor.
  6. Budgeting – budgeting is critical for franchisee performance management, franchisee accountability, supply chain planning and corporate forecasting. They should be prepared by the franchisee / franchisor upon conception and annually thereafter.
  7. Automation of the accounting process – the accounting process should be highly automated including EPOS, BOS, inter-franchise, inter-company, supplier and payroll transactions, this reduces the costs/time for the franchisee, increases the accuracy of data, and reduces the time lag for month end reporting.
  8. Emphasis on the balance sheet – retail franchisors should ensure they investigate the balance sheet for anomalies such as material amounts within the following accounts: trade debtor, prepayments, accruals, and sundry creditors.
  9. Single centralised database – all franchisee accounting data is entered directly within a central data repository which is immediately available to the franchisor. This reduces the time lag between reports being submitted, need for the data to be re-entered into another database which is predisposed to re-errors, and finally if adjustments be required – it avoids having the accounts resubmitted as the revised accounts are instantly available.
  10. Key Performance Indicators – retail franchisors should monitor indicators such as franchisee remuneration, gross margins, overheads, profitability, net worth and liquidity – including actual, variance and budget.

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Retail multi-site compliance & control

d&t and CounterBooks provide retail networks with a complete accounting and online system service.

Multi-site retailers are set to benefit from a recent affiliation between two established market leaders, CounterBooks and d&t Chartered Accountants. Providing a tailored retail accounting service and online system for each site within a network allows the head office to benchmark to better assign support to those who are underperforming against the network averages.

By putting all sites in a network on the same system ensures compliance whilst reduces the costs associated with the system, training and support. Examples of brands who have already benefited from CounterBooks include; the Post Office, Esso, BP, Shell, Esquires Coffee Houses and Scottish & Newcastle. d&t have been appointed as the network accountants by over 75 UK franchisors, with brands including; Café2U, MacTools, Snack in the Box and Dyno (Dyno-Rod).

Carl Reader, director at d&t commented, “We have created a modular approach that allows each network to have the right package of accounting and bookkeeping services for their franchisees or outlets. The services are bundled into a fixed monthly fee with a 100% satisfaction money back guarantee.”

The transition of a retail multi-site or franchise network to a shared system for both their accounting and bookkeeping can take a mix of time and careful presentation. Because the business models are already templated it makes perfect sense for all the systems to be shared by the network as well. Integrating new sites is the most simple as they can be setup with the network approved system. Established sites with a mix of providers and systems often need more convincing of the benefits, although this is an area the teams are used to dealing with and they find education and demonstration to the be the best solution.

“Both organisations have worked informally together for years so it made complete sense to work more closely and provide a joined up accounting and systems solution for multi-site retailers and franchise networks,” commented Alex King CounterBooks Commercial Director.


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Franchising and the Law

Franchising and Law

I recently read a really interesting newsletter from Eurofranchise Lawyers about a number of franchise cases that went to court in various European countries. I thought I would summarise a couple that stood out to me but if you wish to view the full newsletter then go to:

Is a franchisee a self-employed person entering into a commercial contract or are they entering an employment contract?

This is a situation faced by one oil company franchise in Belgium. The set up of the agreement was as such:

–          The dealer sold fuel on behalf of the oil company  and was paid commission on the sale of the fuel

–          The dealer had their own shop which he had full control of the only exception was that the oil company rented the premises to the dealer.

–          The oil company earned royalties on the sales made in the shop.

However, after a couple of years the franchisee claimed that he felt he was actually an employee of the larger company and sued the company to gain the benefits that he felt were owed under an employee contract.

The court examined the content of the agreement between the franchisee and franchisor which covered a number of duties that the franchisee had to comply with in particular:

–          Recording sales data

–          Setting of prices

–          Transfer of fuel sales proceeds to franchisor

–          Adhering to the company’s marketing strategy

–          Wearing the correct uniform

–          Issuing invoices in the name of the franchisor

This meant that there was a close economic dependency between the franchisee and franchisor but on this basis the court did not deem the relationship to be that of employer and employee. However, the court felt that there were also many limitations placed on the franchisee for example, not being able to change the layout of the shop or selecting most of the shop’s products. Due to the economic dependency and limitations placed on the franchisee the court ruled that the contractual relationship could be deemed as an employment contract.

Franchisees gambling with c-store money

This case affected a c-store chain in Denmark. The agreement was such that at the end of the day the franchisee would transfer a certain amount of money into the franchisor’s bank account. However, instead of doing so the franchisee was a pathological gambler and withheld some of the money for his own use. The franchisor noticed that this was happening and terminated the agreement. The case was taken to court and the franchisee was penalised accordingly.

Have you ever experienced situations like this? Let us know your story.

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Interview view with Chris Martin, CEO Musgrave Group

Here’s a great video  looking at Musgrave’s motivations and future plans for development in the UK, Irish and Spanish markets.


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Top Five Risks Concerning How To Buy Gas Station Business Opportunities

Those seeking to buy gas station business opportunities need to know about five factors that can make this purchase Gas Stationparticularly risky compared to other businesses. Along with food, clothing and shelter, Americans consider the fuel needed to run their vehicles a necessity. The chance to be on the selling end of that commodity is what drives a number of entrepreneurs to buy gas station business opportunities.

But there are at least five substantial risks awaiting the buyer interested in this industry. And it is critical to know about them.

1. What’s underground? Among the costliest mistakes in a buy gas station plan is to examine only visible assets. While aboveground equipment might be functioning just fine, an underground disaster is occurring if gasoline is leaking from storage tanks. The state of California is diligent about enforcing environmental rules for gas stations. For the new owner, especially one not protected by a franchisor, that means enormous clean up costs, not to mention the loss of business while the tractors dig up contaminated soil and the station has to be rebuilt. Requiring both Phase I and Phase II soil testing as a condition of purchase, is a must for the prospective buyer.

2. About those tanks. One of the first questions about California gas stations for sale is whether it has DWFG (double-walled, fiberglass) fuel storage tanks with leak detection sensors. If fuel storage for a possible purchase candidate has not been upgraded, it’s best to focus the buy gas station business effort on other offerings.

3. Who’s the real property owner? The land may not be owned by the seller, even if seller is a name brand franchisor dispensing its product at the station. Imagine buying a Chevron or a Shell Oil franchise and learning that the company holds only a lease–being sublet to you–which soon will expire. Anyone wanting to buy gas station business opportunities must insist on knowing who owns the property, whether mortgage payments, if any, are being made on time, and the duration and terms of any lease held by the seller.

4. Future traffic patterns. Many investors who have searched to buy gas station businesses have learned, too late, that a road construction crew would soon tear up the route motorists use to access the gas station business. This fact often is known by the seller. It might even be the undisclosed reason for the sale. So a trip to city hall and a conversation with planning and roads department people is an essential part of the pre-offer due diligence process.

5. Paying a fair price. Some California gas station brokers and sellers like to tie the business asking price to the gallonage pumped or to gross revenues. But the smart entrepreneur pursuing a buy gas station business objective looks at actual earnings before the seller pays, or sets aside money for interest, taxes, depreciation and amortization. In many cases, markup on the fuel sold may not be enough to cover overhead. The profit might come from a related business, such as mechanical repair, convenience market or car wash.

Knowing that most California gas stations sell at a price equating to the range of two to three times the annual EBITDA figure, not including real estate or inventory, a buyer can be prepared when talking price with the seller or broker. And whether the price at which to buy gas station business assets belongs at the bottom, the top, or in the middle of the range, depends on factors such as terms of the lease, seller’s willingness to help finance, and condition of the equipment and improvements.

An entrepreneur on a buy gas station purchase mission is investigating an industry with solid opportunities. But he or she needs to be mindful about the five risks.

About The Author: Peter Siegel is the founder and President of BizBen has over 500 gas stations for sale and lists numerous gas stations brokers and agents who assist buyers and sellers of California gas stations. You can reach Peter Siegel at 866-270-6278.