Deep Thoughts on Cloud-Based Accounting for Emerging Franchisors

What kind of accounting software do you recommend for potential franchisors?

I recommend cloud-based tools, as they are always going to be less expensive. The smart franchisors are collaborative and transparent with their franchisees, and this applies to accounting as well. The more the franchisee succeeds, the more the franchisor does. Both sides want to keep costs down and don’t want to pay for a dedicated group of accountants. Therefore, time needs to go into making better accounting decisions and cloud-based tools are part of that answer. If you are starting a franchised business today, you should only be using cloud-based accounting systems.

What is the most common accounting software franchisors use at the 0-100 size?

The most common cloud-based accounting software is QuickBooks Online and Xero. QuickBooks Online is an industry standard because it is a good general ledger with a long history of providing accounting tools for the average person on a desktop. It does not try to be a point-of-sale (POS) or human resources (HR) system. QuickBooks Online is an accounting system that can interface with a POS and inventory system and its reporting tools allow franchisees to communicate with a franchisor.

Xero is an accounting system created by a team in New Zealand. Since the application was created in the cloud, it has never had a desktop version and is designed to work that way. As a cloud-based system, it allows you to collaborate in real-time with your accountant. It allows users to be able to see information on a real-time basis and to be mobile across a tablet, phone or desktop computer.

QuickBooks Online and Xero are big, well-capitalized companies that have the resources to continually evolve their platforms and improve them. The challenge that franchisors and franchisees face when choosing smaller software platforms is that they are not potentially scalable with your business growth.

What do you have to say about QuickBooks desktop users?

What‘s interesting about QuickBooks Desktop is that users often don’t update their software. For example, if you bought QuickBooks Desktop back in 2010 and have not updated your software since then, you’re missing out on a lot of new features and training. At Armanino LLP, we run five to ten different versions of QuickBooks Desktop just to service clients. If you are going to use the desktop version, it needs to be updated, and the franchisee or franchisor usually does not have the time or expertise to do it and do it correctly. In short, if you use QuickBooks Desktop, use your external accountant’s expertise to make sure it’s updated. They have the right tools for the job.

What about at the 100 + unit level?

At the 100+ unit level, the biggest thing that starts to happen is that the transaction volume starts to get bigger and more sophisticated. A system is needed that handles more sophisticated revenue recognition issues and cost and amortization challenges. At the 75-100 range, you want to start thinking about a medium level enterprise solution – that is still cloud based. Intacct and NetSuite are common systems at this level. NetSuite tends to be a bit better with inventory reporting, but at the franchisor level, most are not as worried about inventory as much unless you there are a lot of corporate owned stores.

In my opinion, Intacct has better intellectual property and revenue recognition capabilities as well. Sometimes franchisors have to amortize fees over period of time and to manage many different fees and with Intacct, you can still have franchisees with Xero or QuickBooks Online, while streamlining your franchise reporting structure.

There are industry specific tools as well to consider. For example, in the restaurant industry, Microsoft Dynamics GP and Oracle are tools well suited for this particular segment.

The other important piece is the royalty collection process. Xero and QuickBooks Online don’t have turnkey royalty collection processes inherent to their systems. Also, if you are mandating that your franchise systems are on a single POS system, like Aloha or Revel, then you will want to make sure they integrate with your software.