While many franchisees plan for economic downturns,...
As a franchisee in Canada, there are ongoing and regular payments you'll need to make to your franchisor, including royalties, rent, tech fees, ad fund contributions, and other costs. Some contributions, such as royalties, are based on a percentage of your sales, while others are more fixed. Revenue reporting and the payment of these expenses varies by system, but here are some basic things you can expect.
Tech has revolutionized the process
Previously, at the end of the month or whatever the franchisor's defined period was, franchisees would calculate the revenue tally, create a report of it, and mail that report and a check for whatever was owed to their franchisor. Not only was this a laborious process for franchisees, but it also made it harder for the franchisor to monitor and audit each franchisee's performance.
Thanks to technology, today's process is pretty different, and the "check is in the mail" excuse doesn't fly anymore. Many franchisors have systems that can monitor franchisee performance on a regular basis, and some are able to directly debit a franchisee's business account for money owed. Nevertheless, most franchise agreements still require franchisees to provide their franchisors with regular financial reports that set out gross sales and back up their calculation of ad fund contributions and other percentage-based expenses. The difference now is that franchisors no longer have to solely rely on this report, as they have their own ways of tracking that same information.
Because a franchisor now has more tools for sales tracking, franchisees' expense obligations are not necessarily due once a month anymore. Some use biweekly or even weekly due dates instead.
One upside here, especially for franchisees who have to get some or all of their supplies or inventory from the franchisor, is that detailed gross sales reports can show the franchisor which goods are being used or sold the most. This data then can be used to improve both inventory control and the supply reordering process.
As a prospective franchisee, it can be concerning to realize that the franchise may have a lot of access to your business and accounting books and records, but keep in mind that the franchise agreement should limit these rights of access to audit and inspection purposes only. If you have any concerns in this area, review the franchise agreement section regarding this access closely before signing.