Top 10 retail

accounting best

practices for

retail franchisorsWH

ITEPA

PER

Who is CounterBooksA market leading online retail accounting management suite for retail franchisors and retail franchisees.

CounterBooks is a cloud based suite which

provides accurate and comprehensive

retail franchisee performance data to the

retail franchisor and therefore facilitates:

• Improved performance

• Management of risk

• Reduced cost

For more information, please visit our website: www.CounterBooks.com or email: contact@CounterBooks.com

Executive Summary

This whitepaper summarises the research into the best practices for retail accounting of the world’s leading retail franchisors. Find out how they minimise

costs, maximise performance and mitigate risk to the benefit of the retail franchisor and their retail network.

This publication contains certain text and information extracted from third party documentation and so being out of context from the original third party documents; readers should bear this in mind when looking at this publication. The copyright in such third party text and information remains owned by the third parties concerned. Please note that the

inclusion of a company in this publication does not imply any endorsement of that company by CV Retail Limited nor any verification of the accuracy of the information contained in any of the examples. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act

upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, CV Retail Limited, its members, employees and agents accept no liability,

and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 CV Retail Limited. All rights reserved. CounterBooks is a trading name of CV Retail Limited.

1Cloud based system

Cloud computing is a type of computing that relies on sharing computing resources through the internet rather than having local servers or

personal devices.

A cloud deployment reduces the total cost of ownership, lowers upfront costs, and provides a scalable and rapid deployment platform –

thereby perfectly suiting the needs of a retail franchise network.

Furthermore, a cloud based accounting system provides secure and instant access to accounting reports from any internet enabled device.

This empowers the decision making of retail franchisees, their advisors, territory/area managers and head office.

Other cloud based systems available to retail franchisors include EPOS, BOS, CRM, merchandising, email, and warehouse management

systems.

2A retail and franchise specific system

A retail business which is company owned and company operated, requires a different approach to management, management information and

systems from one which is franchise operated.

Retail franchisees should use a retail specific online accounting system which has been ‘designed for purpose’, the functionality and features

should be focused on a retail franchise operation.

In addition, the retail franchisor should use a retail specific online ‘management information system’ which has been designed to solve the

unique challenges of managing a retail franchise network.

3Special purpose vehicle for the franchisee’s business

To gain an accurate, insightful and transparent understanding of the retail franchisee’s profitability and financial stability, the retail franchisee should

operate the “franchisee” business from a new / separate legal entity.

Operating various business interests within the same legal entity (such as a Limited company) combined with the “franchisee” business can cause

complications.

These complications include producing truly representative reports, assessing any misreporting of sales or earnings, and more importantly, the

financial health of the “franchisee” business is intrinsically linked with another business interest which is not associated with the retail franchise.

4Standardised and consistent reporting

Standardised and consistent reporting allows the retail franchisor to unlock value within the retail franchise network through analysing trends to

inform decision making. This is achieved through:

All retail franchisees should utilise a standardised ‘Chart of Accounts’ across the retail franchise network. A ‘Chart of Accounts’ is a complete

listing of every account in an accounting system. The use of a standardised ‘Chart of Accounts’ ensures consistent reporting in order to

facilitate comparison and benchmarking across the retail franchise network.

All retail franchisees should use the same cloud based retail accounting system. It is typical for different accounting systems to produce

reports such as a Profit & Loss statement in different formats, making comparison difficult even with the same ‘Chart of Accounts’. Therefore

unless the retail franchisee wishes to spend precious time producing reports in Excel, the use of a standardised cloud based retail

accounting system across the retail franchise network should be compulsory.

5Monthly reporting with drill down

Quarterly or annual reporting to the retail franchisor is insufficient to provide adequate support to retail franchisees. Such infrequency is also

unsatisfactory for the retail franchisees to make informed decisions about their business.

The retail franchisee should prepare monthly management accounts including a P&L and balance sheet in a common format as prescribed by the

retail franchisor through the use of a standardised ‘Chart of Accounts’ and a standardised cloud based retail accounting system.

The reports should include both site level and group / consolidated reports if the retail franchisee operates multiple sites under their franchise

agreement.

A critical best practice is the ability to drill down to underlying data. The use of static format reports such as PDF and excel are inadequate, as they

provide no scope for drilling down. The ability to drill down to the underlying data allows the retail franchisor to assess validity of the reports.

6Budgeting

Budgeting is critical for franchisee performance management, franchisee accountability, supply chain planning and corporate forecasting

purposes.

Budgets should be prepared by the retail franchisee with the support of the retail franchisor upon conception and annually thereafter.

All monthly reports should include budget variance reporting (actual, budget and variance) to allow instant identification of the areas of

improvement and overachievement. This allows the retail franchisee and the retail franchisor to focus on areas of importance and allocate the

necessary assistance such as training and coaching.

The cloud based retail accounting system should include an easy to use budget import function which allows the retail franchisee to produce

budget variance reports without the retail franchisee being dependent on using Excel or other time intensive / costly methods.

7Automation of the accounting process

Monthly reporting obligations can be costly and time intensive for the retail franchisee, therefore it is critical that the retail franchisee’s

accounting process is highly automated.

The benefits include reduced cost/time for the retail franchisee (and retail franchisor), improved accuracy of the data, and reduced time lag for

month end reporting.

As a rule of thumb, the higher the percentage of automation, the greater the benefits it yields for both the retail franchisee and retail franchisor.

The scope for automation includes the following: EPOS, BOS, franchisor-to-franchisee transactions, supplier invoices and payroll transactions.

8Emphasis on the balance sheet

The balance sheet is defined as ‘a statement of the assets, liabilities, and capital of a business.’ World class retail franchisors focus on the

balance sheet as much as other reports, if not more.

Monitoring the net worth and liquidity of a retail franchisee can assist the retail franchisor to provide remedial support to struggling retail

franchisees. But also in managing the credit risk through adjusting the credit limit.

In addition, retail franchisors should investigate whether the retail franchisee is withdrawing funds from the “franchisee” business through a

‘directors loan account’ which can result in the “franchisee” business struggling to pay creditors (suppliers, lenders or retail franchisor) through

excessive remuneration or funding other business interests outside the scope of the franchise agreement.

Retail franchisors should ensure they investigate the balance sheet for anomalies (only possible with drill down functionality) such as material

amounts within the following accounts: trade debtor, prepayments, accruals, and sundry creditors. Material amounts within these accounts can

lead to fictitious results that can suppress profit or disguise the true financial performance of the franchisee.

9Shared and centralised database

The retail franchisee’s accounting data should be held in a cloud based, shared and centralised data repository which is immediately available to

the retail franchisee and retail franchisor.

A key advantage to a central database is that it allows the drill down to underlying data which is absolutely critical as static reports do not provide

the necessary granularity.

The use of a central database reduces the time lag between reports being submitted, the need for data to be re-entered into a separate

database is predisposed to errors, and finally if adjustments are required, it avoids requiring the accounts to be resubmitted as the revised

accounts are instantly available to all stakeholders with the necessary permission rights.

10Use of Key Performance Indicators (KPIs)

The best performing retail franchisors place a strong emphasis on Key Performance Indicators.

This is achieved through monitoring key performance indicators linked to specific value driving areas of the business. It is generally accepted that

four to seven Key Performance Indicators can portray a representative snapshot of the situation and enough to be manageable in volume.

There is a large range of financial Key Performance Indicators such as sales, gross profit, gross profit margin (total or / and by category),

overheads, retail franchisee remuneration, net profitability, stock turnover, net worth and liquidity.

The above Key Performance Indicators are often linked with non financial Key Performance Indicators such as customer satisfaction to provide a

balanced view of the retail franchisee’s performance.

Interested in understanding how you can develop your retail

franchise network into a world class operation?

Get in contact:

Call: +44 20 7099 1050

Email: contact@CounterBooks.com

Twitter: @CounterBooks

Web: www.CounterBooks.com