Terms You Need to Know for Franchise Accounting | Global Shared Services

December 13, 2018

When you first start out with your own restaurant franchise, everything can seem to move too fast and easily become overwhelming. Running your own business can be tough. Managing employees, leadership, complying with franchisor regulations, and running the behind-the-scenes of everyday restaurant ownership can be a lot. Don’t let franchise accounting add to your stress.

Accounting for franchise restaurants can be one of the most overwhelming parts of running your business. One thing that can help you feel a little more at ease is learning the basic definitions of some of the more complicated financial terms used in franchise accounting.

Business Tax Processing

Taxes? They can be worrisome. Businesses? Difficult to run. Put the two together and the phrase sounds downright overwhelming. However, you can’t afford to make mistakes on your business tax processing. Tax compliance is essential to helping your business run smoothly.

Business tax processing is when a franchise accounting firm handles your business’s taxes in order to help you achieve the lowest legal tax liability. An account guides you through the process of determining what can and cannot be expensed to your business, what is a tax deduction at the end of the year, and what your business income is.

A franchise accountant can also guide you through any issues with the IRS. Surprise IRS payments can be devastating to your cash flow and throw a wrench in your best-laid plans. Business tax processing for franchise accounting is important to understand, and it helps to have the guidance of a certified accounting firm.

Fixed Asset Accounting

Let’s break it down. What exactly is a fixed asset? Fixed assets, also known as capital assets, are tangible pieces of property that a business uses to generate its income. These assets are considered fixed because they won’t be used up or sold in the next financial year.

Fixed assets are recorded on your cash flow statement whenever one is acquired or disposed of. The acquiring, selling, depreciation, or disposal of these assets is recorded throughout their lifetime on your finance records.

There can also be fixed intangible assets that are recorded the same way. These intangible assets include things like trademarks or patents.

GAAP

The GAAP stands for Generally Accepted Accounting Principles. These are guidelines that provide businesses with a baseline on how they should report their finance and accounting to shareholders and the public. It shows companies what information they should consider exposing.

In general the GAAP provides businesses with a consistent, but flexible, form of reporting that allows companies to measure their success against each other. GAAP can impact your reporting of sales/revenue recognition and what is defined as cash flow and profit. It’s a good idea to familiarize yourself with those regulations here.

Cash Flow

Your cash flow is what’s needed to keep your business running on a daily basis. Cash flow is defined as the net amount of cash being transferred into and out of your business. You want to maximize your long-term cash flow in order to grow your business.

A franchise accounting service will be able to work with your cash flow statement and report your different types of cash flow. This includes operating cash flow, investing cash flow, and financing cash flow.

Your operating cash flow is the money your business generates just through normal business operations. Investing cash flow is cash generated from investing activities. Your investment cash flow can change based on the amount you’ve invested into capital assets. Last but not least, your financing cash flow is related to your issuance of new stock, dividend payments, and the repurchase of existing stock.

A franchise accounting service can help you learn more about your cash flow and help you plan for the future.

Depreciation

Depreciation happens when you invest in a fixed asset, such as an industrial oven. Over time, the oven will wear down with use, become dirty, need replacements, and eventually the technology in the oven will become outdated. This process is considered depreciation. Year after year fixed assets will slowly depreciate in value.

Franchise accounting needs to take depreciation into consideration for tax purposes, cash flow, and fixed asset statements.

Amortization

The process of amortization spreads payments over multiple periods. There are two different applications for amortization, including amortization of loans and amortization of intangible assets.

Amortization of loans is when loan repayments are redistributed into equal amounts for the duration of the loan, with a higher portion of the interest payment towards the beginning of the period than towards the end. This method of repaying a loan is also called EMI or equated monthly installment.

Amortization of intangible assets is a little more complicated. Say that you have a trademark. As time goes on, the trademark can slowly decline in value due to expiration or loss of brand value. Amortization of a trademark means that you would expense the acquisition of the trademark minus the depreciating value of an asset over a period of time. In short, your payments on a trademark would reflect its depreciating value.

Don’t Get Sucked in with Confusing Terms

Running a franchise restaurant is enough hard work. Don’t get stuck googling franchise accounting terms. When you work with Global Shared Services, you won’t have to worry about fixed assets or business tax processing. Our full service franchise accounting services will guide you through your finances and help you understand what the future of your franchise restaurant looks like.

If you’re ready to take your franchise accounting to the next level, give GSS a call today. Because every business deserves expert-level insight.

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