This document summarizes the top 10 retail accounting best practices for retail franchisors as researched from leading franchisors. It recommends that franchisors use a cloud-based, retail-specific accounting system to provide standardized reporting across the franchise network. It also emphasizes the importance of monthly reporting with the ability to drill down into underlying data, budgeting, automating accounting processes, analyzing balance sheets, maintaining a shared database, and monitoring key performance indicators.

1. Top 10 retail
accounting best
practices for
retail franchisors
WHITEPAPER

2. Who is CounterBooks
A 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.

3. 1 Cloud 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.

4. 2 A 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.

5. 3 Special 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.

6. 4 Standardised 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.

7. 5 Monthly 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.

8. 6 Budgeting
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.

9. 7 Automation 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.

10. 8 Emphasis 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.

11. 9 Shared 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.

12. 10 Use 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.

13. 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