Franchise accounting 101: Staying on top of cashflow

by Feb 18, 2024Running a business

Running a successful franchise involves juggling various responsibilities, and one of those key responsibilities is ensuring that you’re maintaining a healthy cashflow – something that can make or break your business.

In this blog post, we’ll explore some fundamental principles of franchise accounting to help you with your cashflow concerns.

Master your cashflow with franchise accounting

Identify your break-even point

First, you need to identify your franchise’s break-even point – the level at which your total revenue equals your total costs. In other words, this is the point where you’re neither losing nor gaining money.

Remember to account for all your costs, from franchise fees to utility bills. Once you know your break-even point, you can examine your figures to see whether your business will make a profit and determine where you can improve.

Monitor and manage your expenses

Next, you must closely monitor your expenses and identify unnecessary costs that you could cut. This task will require meticulous and regular bookkeeping, which can be highly time-consuming. If you don’t have the resources to spare, a professional bookkeeper can manage this for you.

You should consider each spending cut carefully. After all, the last thing you want to do is lose an important asset or an employee who adds value to your business.

Managing expenses is also about more than cutting things out. For example, you may be able to renegotiate your energy bills or access discounts from your suppliers by buying in bulk.

Send timely invoices and payment reminders

A healthy cashflow doesn’t just mean cutting costs; it’s also important to get paid on time. As a result, sending timely invoices and payment reminders is an essential part of franchise accounting.

You can begin by issuing invoices promptly and implementing a robust system for following up on overdue payments. You could also provide incentives for early payments to encourage customers to settle their bills promptly.

While putting a new system in place may sound intimidating, many cloud accounting software packages allow you to automatically issue invoices and send reminders to late-paying customers. Check out our cloud accounting services to find out more about different solutions.

Efficiency inventory management

When you purchase inventory, that cash will be ‘wrapped up’ in that product until you can sell it. Therefore, you must properly manage your inventory to avoid common franchise accounting pitfalls.

That means avoiding overstocking, which ties up your funds in products you can’t sell, and understocking, which can lead to lost sales and dissatisfied customers. Regularly reviewing stock levels and taking advantage of digital inventory management systems can make a massive difference to your cashflow.

Setting aside emergency funds

All businesses face unexpected costs from time to time. Unforeseen circumstances like sudden illness or supply chain problems can impact your cashflow, so having a financial safety net is essential.

Setting aside emergency funds can help you weather these kinds of challenges. This reserve can cover unexpected expenses, such as equipment breakdowns or sudden drops in sales, ensuring that the business can continue operating smoothly even during tough times.

The power of professional help

If you’re serious about maintaining a healthy cashflow, the best thing you can do is speak to an accountant or financial professional for help.

At Diamond Accounts, we take a proactive approach to franchise accounting. From managing your books and identifying cost-cutting areas to advising you on invoicing and inventory systems, our support will ensure you stay on top of your cashflow. We can even create cashflow forecasts to analyse your progress.

Are you looking for franchise accounting support? Don’t hesitate to get in contact with us.

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