Franchise systems need a common basis for understanding and comparing franchisee performance.
A common Chart of Accounts is essential for these activities.
A common Chart of Accounts is referring to the practice of having the same account breakdown for all revenue, expense, asset, liability and equity items across franchisees. This practice should also extend to other financial and non- financial metrics that are relevant to the particular business model.
Then franchisees, and franchisor support staff, have a powerful basis for comparison.
The Chart of Accounts should be very specific across all of the different areas and often include definitions that provide franchisees with direction on how they handle certain items.
Only with a common Chart of Accounts, can a franchisor really have a basis to benchmark franchisee performance, and, truly understand the performance and effectiveness of their unit-level business model.
A common Chart of Accounts is critical to understanding franchisee business performance, and working with franchisees on their business plans.
Franchise Agreements will often reference the existence of a required Chart of Accounts. That Chart of Accounts should then be included within Franchisee Management Manuals and/or related documentation.
Relevant questions:
- Do you prescribe a common Chart of Accounts for your franchisees?
- Do you provide franchisees with an explanation of what items are to be included within a certain account?
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
We have assembled the first 40 best practices into The Best Practice Handbook, which is available for purchase.
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