September 2, 2026
Utah and Franchises, a pair almost as legendary as the Wasatch and skiing. As the state creeps up to 10,000 franchise locations, with 11 billion in annual revenue (International Franchise Association), the need for relevant, timely, franchise accounting also continues to grow. At Larson, we help franchise owners navigate their brand requirements for accounting for and presenting that revenue.
3 major points of importance on the financial statements to a parent brand (Franchisor) are timing differences, presentation of certain revenues and expenses, and royalties & targets. Meanwhile, the 2 most important points of use on the financial statements for individual franchise owners (Franchisee) is almost always cash and growth. Oftentimes, the parent brand requirements for financial statements differ from traditional cash basis. This difference in presentation can cause the financial statements to look unfamiliar to the individual brand owners, leave them unsure of their cash and growth, and cast doubt in making future decisions.
Franchises usually practice accrual accounting, recognizing cash when cash is earned, not when cash is deposited. Prepayments like selling a gift card or receiving a catering deposit would be held on the balance sheet as a liability until the redemption of the gift card, or the catering delivered. Once the revenue event has taken place, it is then moved to the Profit and Loss (P&L) as income. The same holds true for expenses. A franchise owner may have already paid cash out, but it is not reportable on their P&L and instead sits on the balance sheet as a prepaid asset until the expense is due. A Point-of-Sale (POS) system may pay out a few days after the sale, causing a very short-term account receivable that should be automated so as not to manually adjust sales nearly daily. Other timing delays, such as inventory and payroll, also exist. Due to these timing differences in franchise accounting, it is common for there to be a dozen or more additional, dynamic, assets and liabilities that are normal course of business but not yet allowed on the P&L.
Parent brands rely on clean, consistent Franchisee data to track trends, strengthen the brand, and support owner sales. They do this by standardizing the Franchisee chart of accounts, ensuring comparability exists between all locations. A brand Franchisor may require only a select few accounts leaving the Franchisee free to build the rest of their accounts. Alternatively, they may require a full list with written approval to change or add any accounts. Most owners are required to turn in their financial statements to their brand monthly. Many bookkeepers or owners have their own preferred chart of account templates, or use a generic one supplied by an accounting system such as QuickBooks. There are many reasons a non-brand compliant chart of accounts may exist within a company. However, making the switch to the brand required chart of accounts and supplementing the accrual vs cash basis differences with a statement of cash flows will do wonders in helping the Franchisee understand their brand. At Larson guided charts of accounts change can open a clear path into growth, comparison, targets, and timely decision making.
Royalties are a recurring percentage of revenue due to the parent brand. Targets are a conglomeration of accounts that together should meet certain percentages of revenue monthly, inline with brand guidelines. Targets may be for individual owner information only or may be required to be turned into the brand along with the monthly financial statements. Some Franchisors automatically debit royalties based on a POS report, many others are still manual and require careful calculations. Franchisees will want to be sure sales are counted correctly so they do not overpay or underpay royalties. Since royalties are reported at the gross level, they cannot be calculated by the net payout deposit, which usually have several items of discounts, and fees layered in a POS report that never hits the bank. A Franchisee who owns multiple locations, each with different royalty amounts due, will likely find themselves spending hours of time on various royalty and target reports. Multi location owners will especially benefit from the outsourcing Larson is happy to provide.
Franchisors usually require the use of certain software, POS systems, and vendors, all which may generate complicated financial reports that need to be input into the accounting system beyond regular bank activity. All of this can affect the frequency of accounting needs. With a full department dedicated to accounting services, Larson ensures you are not waiting months to catch up your books, your financials are turned into your brand on time, and you do not have to take hours away from running your business translating POS reports. With timely financials, a Franchisee can better make decisions to hedge against the not-so-great, and foster the good in near real time, not months after the fact when the chance to make substantive corrections has long passed.
Thinking of becoming or already are a Franchisee? Larson’s expertise in the franchise industry can help you close your books timely, stay in brand compliance, correctly follow the cycle of cash from the Point-of-Sale through the balance sheet and profit and loss, provide clarity regarding any disconnect between cash flows and accruals, and advise for growth using meaningful financial ratios. Please contact the Larson Small to Medium Sized Businesses Team with any questions you might have.
Additional Resources
www.franchise.org – A dashboard of help articles, news, directory of franchising opportunities and membership and community within the word of franchising.
www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise - The official Federal Trade Commission guidance on buying and maintaining a franchise, in plain language, with several other jump off links to helpful related articles.
What is franchise accounting?
Franchise accounting is the process of recording and presenting a franchise location's financial activity in a way that meets the parent brand's requirements, which often differ from standard cash basis bookkeeping.
Why do franchises use accrual accounting instead of cash basis?
Accrual accounting recognizes income when it is earned and expenses when they are incurred, rather than when cash changes hands. This matters for items like gift cards or catering deposits, which are held as liabilities until the service is delivered.
What is a franchise royalty and how is it calculated?
A royalty is a recurring percentage of revenue owed to the parent brand. It is calculated on gross sales, not on the net deposit that hits the bank, since the deposit often already reflects discounts and fees.
Why do franchisors require a specific chart of accounts?
A standardized chart of accounts lets franchisors compare financial performance consistently across all locations. Franchisees may need to convert their own records into this format or switch accounting systems to match it.
What are financial targets in a franchise agreement?
Targets are groups of accounts that together should meet certain percentages of revenue each month, based on brand guidelines. They may be for internal tracking only or required as part of monthly reporting to the franchisor.