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Franchise Accounting Pain Solved

Franchising World / February 2022

During times of economic challenges, franchising systems tend to remain strong.

 

COVID-19 represented an opportunity in the franchising world, as people were laid off and furloughed due to an unprecedented pandemic. Many took the opportunity to bet on themselves and took the entrepreneurial path to business ownership through owning a franchise. People invest in a franchise because they have a community of support behind them and a proven business model. In addition, the era of COVID-19 presented multiple government programs to support ownership. The result is growth in franchising communities.

Creating success is a team effort as franchisees wear many hats. A vital part of creating a successful and mutually beneficial franchisor-franchisee relationship is timely financial insight. Many franchisees rely on a traditional CPA to deliver their financials, but find that the accounting industry is falling behind in terms of technology and cannot provide the monthly reports in a timely manner. Others may resort to do-it-yourself accounting, which cuts into the time that could be spent on sales, marketing and other activities to grow the franchise.

The solution lies in the digitization of traditional services, such as expert cloud-based bookkeeping and accounting. This gives valuable time back to franchisees and provides timely, actionable insight to franchisors, which helps them work together to expand the business.

 

Digital Transformation in Franchise Financials

When cloud-based accounting is paired with the support of an expert accounting team, franchisees enjoy innovative solutions for their financial needs, including digital bookkeeping along with bank and credit card reconciliation — all done through a tax-saving lens. Each month, key financial reports are generated in their online accounting platform in a timely manner and available to be sent out to the franchisor.

A vital part of creating a successful and mutually beneficial franchisor-franchisee relationship is timely financial insight.”

For franchisors, timely access to franchisee financials presents the opportunity to understand top-performing trends and best practices. This also enables franchisors to provide guidance and insight to support the growth and success of their franchise community.

With the modernization of business, traditional accounting services are falling behind in supporting companies due to a lack of expertise in technology trends in digital-first industries. Non-specialized CPAs may lack the specific knowledge required for franchise bookkeeping, technological connectivity, and time to support the franchisee.

Traditional accounting also requires high proficiency and time to accomplish all the necessary tasks. If the franchisee chooses to do their own accounting, it could take time away from other activities essential for growing the business.

By pairing cutting-edge software with expert support, cloud-based accounting provides franchisees with accurate, up-to-date financial data. Franchisors are able to focus on expanding their franchise, while the finance experts behind the accounting platform deliver timely insights each month. Franchisees can also use the real-time information to make informed business decisions and seek support from franchisors as early and often as needed.

 

“A vital part of creating a successful and mutually beneficial franchisor-franchisee relationship is timely financial insight.”

Accuracy in Item 19

In addition to bolstering franchisee success, timely financial insight helps franchisors answer the number one question asked by prospective franchisees: “How much money will I make?”

To respond to questions about profitability, franchisors need to consolidate data from franchisees’ Profit and Loss Statements for Item 19. Item 19 is the franchisor’s opportunity to make oral or written representations about the financial performance of their business and the average net profit of their franchise community. Accuracy is critical to establishing trust and transparency in the sale process to new franchisees.

In IFA’s 2021 Economic Outlook for Franchising, FRANdata projected franchise employment to produce nearly 800,000 jobs in the United States by the end of 2021, with franchise establishments increasing at a rate of 3.5 percent. With more and more individuals exploring the franchise space, franchisors have the opportunity to attract new, qualified and forward thinking franchisee candidates.

Detailed financial disclosures instill a sense of trust and honesty, enabling franchisors to secure the ideal franchisees for their growing franchise community.”

Including Item 19 enables franchisors to provide a complete picture of their franchise’s financial health and set a standard of transparency, while remaining compliant with franchise laws. It gives potential franchisees a data-driven estimate of how profitable they could be by joining the franchise, and enables them to weigh their options and make an informed decision. Detailed financial disclosures instill a sense of trust and honesty, enabling franchisors to secure the ideal franchisees for their growing franchise community.

 

Looking Ahead

Accurate and timely financial information is the key to unlocking success for franchisors and franchisees alike. Franchisees thrive on flexible, personalized bookkeeping and accounting support for financial compliance and the reporting necessary to grow their business. Franchisors depend on streamlined reporting to disclose revenue and profit information to prospective owners and provide key performance indicators for new franchisees.

As the business world undergoes a digital transformation, cloud-based accounting offers modern franchise businesses the tools they need today to prepare for tomorrow.

Lil Roberts is CEO and founder of Xendoo, a cloud-based fintech company that specializes in online bookkeeping and accounting for small businesses. For more information about International Franchise Association (IFA) supplier member Xendoo, visit franchise.org/suppliers/xendoo-inc.

Lil Roberts in Inc magazine

Lil Roberts: Featured on Inc. Magazine

Capital Ideas

Coming to the table

November 2021

“I believe you have an audience until you lose them, and if you lose them, you can’t get them back. Talk about the problem, your company’s scalable solution, the company’s traction and stage in the life cycle, and the market size within three minutes. If you’re unable to share those details in under three minutes, you may need to improve your clarity.” Lilian Roberts. Founder and CEO, Xendoo.

 

White female business over pointing at a computer and speaking to her white male employee

Xendoo vs. Pilot: Comparing Online Bookkeeping Services for Small Business Owners

Bookkeeping is critical to the financial health of every business, but business owners rarely have the time (or desire) to manage it themselves. To take their time back, many business owners choose to outsource their bookkeeping and accounting. There are many options available, from traditional CPAs to tech-savvy online companies. So, how do you choose the right financial partner for your business?

Today, we will take a look at two popular providers: Xendoo Online Bookkeeping and Pilot. Both provide quality online bookkeeping and tax services, but there are some key differences in features that will help you weigh your options:

  • Online bookkeeping and tax services 
  • Accounting software 
  • Accounting methods

In this blog post, we will explore these key differences so that you can make the best choice for your business!

Online Bookkeeping and Tax Services 

Most of Xendoo’s online bookkeeping packages are tax-inclusive, with prices starting at $295 per month. Plans can be paid monthly or annually, whichever works best for you. We reconcile your books weekly, and deliver your reports as early as the 5th business day of the month, depending on the plan you select!

Pilot offers three online bookkeeping plans, with prices starting at $599 per month, all of which are paid annually upfront. Tax services are available at an additional cost and must be purchased separately.  

If you are behind on your bookkeeping, Xendoo and Pilot also offer catch-up services so you can get previous months’ books in order! 

Accounting Software

Most small business owners manage their finances in a variety of ways, the more software options, the better! That is why Xendoo works with both Quickbooks Online and Xero. Depending on the nature of your business, one of these options will be able to meet your specific needs. 

 

Pilot only offers Quickbooks Online. If you are already working in Xero, they will have to switch you to QBO and leave your history behind. While QBO is a solid option, it may not be the ideal choice.  

Accounting Methods

Accounting methods determine when income and expenses are recorded in your financial statements. They affect how cash flow, profitability, and business performance are tracked. The method used depends on your business and tax needs. 

 

Xendoo and Pilot use different accounting methods, with one exception: cash basis accounting. Depending on the plan you select, Xendoo will use a cash basis or modified accrual basis. Pilot defaults to an accrual basis on all plans, but you can request a cash basis. 

 

  • Cash basis accounting is a method in which revenue is reported only when cash is received, and expenses are noted when money leaves your account. It is often used by small businesses because of its straightforward nature. 
  • Accrual basis accounting records income once it is invoiced to the customer and records expenses once the bill is entered (even if it has not been paid yet). This is a complex method, used mostly for businesses with $5 million or more in annual revenue.
  • Modified accrual basis accounting combines the best aspects of accrual and cash basis. It recognizes prepaid expenses and offers accrual for inventory and other Balance Sheet categories.

 

As accrual basis accounting is the most complex method, it is the most expensive and time-consuming method to complete. Even if your business needs to account for inventory and accounts payable and receivable, the accrual basis method may not be necessary. The modified accrual method can meet your business needs in a cost-effective and timely manner. 

 

We recommend speaking to your accountant to determine the ideal accounting method for your business. 

Try Us Out

Xendoo offers a free trial in which we complete your bookkeeping from the previous month, plus the Profit and Loss Statement and Balance Sheet, so you can experience the Xendoo difference for yourself. If you decide that Xendoo is not the best fit for you, we will gladly connect you with others in our network so you can find your ideal financial partner. The data and reports are yours to keep in your QuickBooks Online or Xero account. If you choose to partner with us, you will have access to a comprehensive customer portal, with data-driven visualizations, and your financial reports at your fingertips 24/7.

 At this time, Pilot does not offer a free trial. They do weekly demos where business owners can tour the platform and ask questions.

 

For a brief summary of how Xendoo and Pilot compare, check out the chart below:

 

Who is Right for You? 

It depends! Every business owner needs financial visibility into their numbers for effective decision-making and growth. If you are looking to simplify your books, Xendoo is the best choice for timely, accurate, and worry-free bookkeeping, accounting, and tax services for you and your business. 

In Q4 2021, Xendoo will launch XendooPayroll, powered by Gusto.

Xendoo is a team of real people that care about you and your business. Allow us to handle the hassles while you put more money in your pocket, reduce your stress, and get back to doing what you love. So, are we a fit for your business? Let’s talk! Schedule your free consultation today!

A white, red-head female business owner stands proudly in her office, surrounded by packages

Top 7 Requirements to Secure Ecommerce Funding (Hint: They’re Not What You Think)

In the past, online sellers often had to dig into their own pockets to fund their eCommerce business dreams. 

Since small or growing businesses are technically high-risk investments, banks and other financial institutions were reluctant to part with their cash to help eCommerce sellers. 

But times have changed. 

Today, there is a growing number of funding options eCommerce entrepreneurs can tap into to make even their biggest, hairiest goals reality. Great news, given that 9.5% of businesses without financial capital say it negatively impacts their profitability. 

Yet, many eCommerce sellers are stuck in their ways, seeking capital from red tape-heavy banks or going without any funding support at all. In fact, a staggering 50% of UK SMEs don’t look beyond traditional funders—and the tunnel vision can definitely cost them.

The good news? It doesn’t have to be this way. 

To prepare you to face your next funding application with confidence, let’s jump into some of the requirements you’ll need.

Ready for a flexible funding solution? Learn more about how we help eCommerce owners improve their cash flow.

 

Secure ECommerce Funding the Simple Way

  • How to Fund an Ecommerce Business: Know Your Options
  • What Do I Need to Secure Ecommerce Funding?

1. Proof your business is on the right track

2. Know what eCommerce funding you need (and what for) 

3. Showcase your good moral character

4. Get your paperwork in order

5. Show off a little

6. Clean up your credit, stash away cash, and get collateral (but not for the reasons you think)

7. Be mentally prepared to move on

  • The Blueprint for Getting Your Ecommerce Business Funded  

 

How to Fund an Ecommerce Business: Know Your Options

Ecommerce funding has come a long way since its inception, and there is now a potential capital source to suit every business size and budget. 

Here’s a quick rundown of the most common eCommerce funding options:

 

  • Working capital: The seller receives funding to cover gaps in cash flow for day-to-day business expenses like shipping costs, supplies and utilities, or invest in a new product line, ad campaign or additional inventory for peak sales seasons.
  • Cash advances: The seller receives a lump sum and agrees to pay a percentage of their monthly turnover to the lender until the advance is paid in full—note: cash advances aren’t loans.
  • Invoice factoring: The business owner sells their accounts receivables (due invoices) to a factoring company at a discount with fees added on top. The factoring company then releases the funds to them.
  • Crowdfunding: The entrepreneur pitches their idea on a dedicated online platform to the masses, and individuals can choose to invest. There are three kinds of crowdfunding: debt, donation, and equity crowdfunding.
  • Peer-to-peer lending: Usually facilitated through an online platform, the individual receives funding from a person instead of a financial institution.
  • Angel investing: The business owner sells a stake in their business to a high-net-worth individual in return for capital.

 

Are you struggling to decide between cash advances and working capital loans? We can help.

What Do I Need to Secure Ecommerce Funding?

Thanks to the flexibility of some of the newer, more modern funding options, today’s funding requirements for growing eCommerce businesses tend to be much more flexible than those of traditional funders.

While most alternative eCommerce funders won’t throw out your application for lacking things like management expertise, collateral, or credit, there are some standards you’ll have to meet. 

Let’s break these down:

1. Proof your business is on the right track

 

Alternative funding providers are all about businesses with results that prove they’ve got a promising future.

No matter who you acquire eCommerce funding from, there’s one thing your provider will want to know: that they’ll get their money back plus a fair return

While you don’t have to be the next overnight Amazon sensation to prove your worth, you must show you’re a viable business and a low-risk investment.

Here are some things you can provide to show your business is worth the investment:

  • Calculations that demonstrate your business has a high ROI, net operating income, and Debt Service Coverage Ratio (DSCR). (More on this in a minute 😉).
  • Documents proving your business consistently turns a profit.
  • Store reports showing sales volume and minimal product returns.
  • Statements demonstrating you have sufficient liquidity to repay a loan, plus its interest and charges.
  • Records showing you’ve been in operation for at least 12 months.

If you meet these requirements, securing funding becomes a win-win situation for everyone, and you’ll have better chances of getting approved. 

 

Looking for a faster solution? Find out how you can pre-qualify for up to $1,000,000 in less than 5 minutes.

2. Know what eCommerce funding you need (and why you need it)

 

By the time you’re ready to start sending applications to prospective funding providers, you should have concrete answers to these things:

  • Your reason(s) for applying for external funding.
  • The intended purpose of the cash injection.
  • How much capital you need.

Not only will this help narrow down the type of funding you need (and suitable providers), it’ll also show you’ve done your due diligence.

Taking on funding is no child’s play, and mistakes in this area can cost you. Funding providers want to know you understand the risks involved and are prepared to take on this commitment.

Here’s how to show eCommerce funders you’re ready, step-by-step:

  1. Create a documented breakdown of the capital amount you need for each task (adjusted with a buffer for unplanned bills).
  2. Work out your return on investment (ROI). Are you making enough returns to make funding feasible? Note long term debt reduces ROI.
  3. Analyse your net profit income. How healthy is it? Will you have enough liquidity in your business to operate once you start to repay successfully?
  4. Assess whether any existing debts will inhibit you from making repayments. Calculate your Debt Service Coverage Ratio (DSCR) to help you with this task.

These are the three equations you’ll need:

 

1. ROI % = (Net profit) / Cost Of Goods Sold (COGS) * 100 

I.e. $20,000 / $10,000 *100 = 200%

2. Net Operating Income = Revenue – Cost of Goods Sold (COGS) – Operating Expenses

I.e. $50,000 – $20,000 – $10,000 = $20,000

3. Debt Service Coverage Ratio (DSCR) = Net Operating Income / Annual Debt Obligation

Not a fan of calculations? Try this DSCR calculator.

And, there you have it! A summary of your most important figures that prove your eCommerce business is good to go.

💡 Top tip: For best results, submit funding applications during peak seasons. When your sales volume spikes, you’ll be able to cover the repayments with plenty left over. This extra wiggle room helps funders feel more comfortable funding your business, and removes the stress of worrying about repayments.

 

3. Showcase your good moral character 

 

Most traditional funders will expect you to show good moral character—but some of the newer funding providers take a fresh angle on what this actually means. 

Here’s what a funding provider might look for: 

  • Overdue bills: Zero overdue bills (like student loans or credit card debt).
  • Missed payments: If you’ve gone rogue on payments to another funder, a credit check will reveal this to your prospective funder.

Note: If you have slipped on paying existing debts, don’t beat yourself up. According to Experian, US credit card debt stood at $756 billion. It’s a problem for many. Take active steps to get back on track with your payments and reduce your debt balance before applying for additional funding.

  • Get your paperwork in order

It may seem like an old-school requirement, but being organised can pay off big time in your eCommerce funding journey. 

Not only can getting your ducks in a row make the application process go smoother and faster, it may also earn you brownie points with the people reviewing your application. 

As the saying goes, ‘how you do one thing is how you do everything’. 

Remember, despite your funder being a financial institution or VIP, you’re still dealing with peopleso first impressions count.

Here are the docs you’ll need to prepare as standard:

  • Proof of address
  • Articles of Association (and the names of directors and associated persons)
  • Company bank statements
  • Financial accounts, i.e., Income Statements, Profit and Loss statements
  • Financial projections
  • VAT returns/ Tax returns
  • Business plan

 

  • Show off a little 

To stand out, you need to get comfortable with a pinch of humble bragging. Opportunities to show off about your business only come around rarely, so when they do, grab it with both hands.

For example:

  • Do you have a business degree or business-related qualification(s)? 
  • Have you worked in retail, sales, or management for X amount of years?
  • Is your team excellent at drumming up funds through pre-launches?

These details will let potential funders know you care about success and are willing to invest in yourself to excel.

 

  • Clean up your credit, stash away cash, and get collateral (but not for the reasons you think) 

An increasing number of funding providers are choosing to overlook bad credit or a lack of assets at first glance—but there’s often a catch, and if you’re not careful you might end up with crappy interest rates, terms, or fees.

Having good credit, savings, and assets will put you in a better position to choose funding types and providers as well as negotiate terms. Plus, it’ll demonstrate to your potential funding providers that you:

  • Are in a stable financial position.
  • Have an alternative source of funding and aren’t in dire straits (desperation is never a good look).
  • Have a concrete backup plan should things take a turn for the worst.

Now you know why it pays to clean up your credit, here’s a game plan to go ahead and straighten up your finances: 

  • Start your credit-building journey by getting yourself and your business a credit card to build credit history and pay off existing debts. The debt avalanche and snowball methods are the most commonly used systems for clearing debt fast.
  • Analyse your progress through a credit score tracker.
  • Build a saving pot for your business by putting away a slice of your profits into a business saving account. Treat it like a bill you must pay no matter what.
  • Finally, work on securing assets for your business, like better equipment and storage units. They’ll impress funding providers and help you optimise the running of your business.
  • If you hit any road bumps, motivate yourself by picturing how impressive you’ll look to prospective funders with savings and good credit. 💪

 

  • Be mentally prepared to move on 

Having the relevant paperwork, collateral, and credit is essentialbut it’s only part of the story to secure eCommerce funding.

So what’s missing? Resilience.

You’ll likely hear a lot of no’s on your journey, so be prepared to pick yourself up, keep your goal in sight, and move on to the next. 

Compared to traditional loans, eCommerce funding is still a new gamethat means funding providers are continuously adapting their rules and approaches, and many are yet to catch up with eCommerce’s speed. 

Does this make life as an eCommerce owner more complex? You bet. 

But don’t forget you have a ton of options that give you the advantage. If you’ve tried to secure funding through traditional avenues before, and it’s just not workingmove on.

Your dream funding option is out there, and your perseverance will pay off. After all, only 20% of US-based small businesses don’t use external funding.

The Blueprint for Getting Your Ecommerce Business Funded  

Thanks to a sharp rise in alternative modern solutions, business leaders can now overcome traditional funding requirements and opt for more flexible terms. 

But you aren’t entirely off the hook. 🎣

Today, eCommerce funding is a whole new ballgame with a new set of requirements to fulfill.

So, learn what you need to get approved by each, then execute with precision. Who knows, you may end up with more funding options that you know what to do with!

At Sellers Funding, our application process focuses firmly on sales performance, not credit history or collateral. If you’re not sure which funding option is right for your business, we can help.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

A bar owner standing in front of a POS system

Eight Tax Tips for Restaurant Owners

Editor’s Note: This post was originally published in February 2017 and has been revamped and updated for accuracy and comprehensiveness. 

You know that filing taxes can be stressful even in the best of times, but as a restaurant owner, tax time can leave you feeling in the weeds because your deductions are exponentially more complex. Never fear, though, because Xendoo is here to help. If you aren’t yet taking advantage of our full suite of professional business accounting services, here are a few quick restaurant tax tips for filing returns that can help save you some headache and money.

1. Document, Document, Document!

Did we mention that you need to document everything?  One of the best restaurant tax tips is to document and keep every invoice, every check stub, and every e-mail, no matter how inconsequential you might think it is at the time. You just never know when you might need to produce that little receipt during an audit, and running across a receipt might even remind you of something that you almost forgot to deduct. Set up a sound filing system where you can locate any tax documents you might need by vendor or category and keep it up to date.

2. Deduct All Food and Beverage Expenses

Since food cost is almost certainly your largest expense category (with the possible exception of labor), you should be deducting the cost of everything on your menu as an ordinary and necessary cost of doing business. But it’s not just the actual ingredients that you can write off. You can also deduct the cost of preparation materials like fryer oil and condiments, as well as any food that you have to throw out because it’s expired or spoiled. This is one restaurant tax tip that can take the sting out of tossing out old produce.

A restaurant staff cleans up after their shift.

3. Deduct All Employee Compensation

Payroll is your other big expense category, and it’s deductible as an ordinary and necessary expense because obviously, your business can’t operate without staff. But, again, it’s not just the weekly payroll that you get to deduct. You can also deduct the cost of any employee discounts on meals, paid vacation or sick days, and any dental, vision, health, life, or other types of insurance you might provide for your team members. However, business owners don’t generally get to count salaries or benefits to themselves as deductions because doing so would essentially make any profits from the business tax exempt.

4. Deduct Mileage and Business Travel

Do you or any of your employees drive a personal vehicle as part of the business? Are you maybe making deliveries or picking up supplies? What about to or from training events? If you have any sort of driving directly related to your business, you can deduct that at the current standard mileage rate. But be careful—this is an often-abused deduction, so your documentation of it needs to be meticulously maintained. Driving to and from work doesn’t count as a business expense. Use either a separate ledger or a smartphone app that’s designed to track mileage. Also, if you have overnight travel for training, food shows, conferences, or other business-related events, you can deduct hotel and food expenses, as well.

5. Deduct Large Equipment Purchases

Under a 2016 change to the tax code, you can now deduct the total cost of certain equipment purchases up to $500,000 for the year of purchase instead of depreciating equipment over time in the traditional manner. Known as the ‘Section 179 deduction,’ this change is meant to ease the cash flow for small businesses. It covers a wide array of equipment such as computers, office furniture, vehicles, and machinery. That means the new walk-in cooler you just bought because the old one finally bit the dust can start working for you right away.

 

A server pours coffee into mugs.

Photo by Tyler Nix on Unsplash

6. Take Advantage of the Work Opportunity Tax Credit

Many business owners aren’t aware that the tax code rewards employers for hiring people from certain groups that have historically had difficulty finding employment. Known as the Work Opportunity Tax Credit (WOTC), these groups might include military veterans, summer youth employees, long-term unemployment recipients, rehabilitated felons, residents of designated Empowerment Zones, and many others. This restaurant tax tip is an excellent way to save your business some money while contributing to the community through socially responsible hiring practices.

7. Make Use of Enhanced Charitable Deductions

With a handful of exceptions, the IRS allows businesses to deduct donations to §501(c)(3) nonprofit organizations just like individuals do, including some enhanced deductions specifically for restaurants donating food. Take advantage of these types of restaurant tax tips can be a little tricky, though, so you probably want to hire a small business accounting firm like Xendoo to help navigate these waters safely. You can’t deduct staff time or the total fair market value of the food, but these deductions can still help boost your profit margin significantly.

8. Track Employee Tips Meticulously

Reporting credit card tips is pretty easy since they are tracked through the POS system, but cash tips can get messy. It’s the responsibility of servers to report their tips accurately, but if they don’t report cash tips, the IRS will assume an 8% tip rule. In cash sale situations, the business owner’s responsibility is to withhold 8% of the employee’s cash sales as an assumed tip, and liability for failure to do so could land on the employer. It’s a good idea to go over these rules with your team because you also have to file a Form 8027 each year, and the IRS expects to see accurate records, so it’s in everyone’s interest to pay attention to this one.

 

These restaurant tax tips are a good start for any business owner, but bookkeeping for restaurants isn’t for the faint of heart, which is why Xendoo is ready to help with our affordable bookkeeping and accounting services. Instead, it would be best if you spent your time growing your business and let our team of experts lift the tax burden and do what they do best.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.