Taxing issues

If you are looking to buy a franchise, but have no idea where to begin with accountancy and tax issues, Carl Reader reveals all you need to know

One of the benefits of entering a franchise network is that your franchisor and other franchisees have a wealth of knowledge about the business you are about to start. Although your franchisor would be hesitant to offer you definitive accountancy and tax advice, they would usually be able to give you some pointers about the key areas you need to take advice on.

Some franchisors also have an arrangement with a firm of accountants to provide an ongoing service to their franchisees. This is hugely beneficial to franchisees as it means they have an accountant who fully understands their business, and who has knowledge of how other similar businesses are performing. This can ensure that you receive feedback on how your business is doing comparatively to other businesses, and also helps you ensure that you are claiming all potentially tax deductible expenses.

A decision that needs to be made when starting a business is in relation to the bookkeeping system that you will use to monitor your ongoing transactions. Computerised systems have evolved and are now as user-friendly as the traditional ‘big red cashbook', allowing a business owner to enter their transactions into a system to fulfil their obligations as a business owner to keep adequate books and records. However, the advantage of a computer system is that the system can report on how the business is performing, providing you with reports such as profit and loss accounts, balance sheets and monthly management accounts.

You need to check with your franchisor whether there is a compulsory bookkeeping package, as many franchisors have specific systems for their network to ensure consistency of data for head office. A growing number are implementing cloud accounting solutions so that franchisees have access to their data from any location.

When setting up a business you have a choice of business structure. Again, this is an area that your franchisor might guide you on, and in fact they may oblige you to use a certain structure. You should take this into consideration when taking initial advice from an accountant about the optimal business structure for your new venture.

Whilst there might be industry specific tax advice that you need for your business, perhaps more importantly in the early days is the franchise specific tax advice, particularly in relation to your upfront franchise fees. Taking advice from a bfa affiliated firm of accountants will ensure that you reclaim your expenses at the right time. Broadly speaking, the initial costs can be broken down into revenue expenses (claimable immediately), tangible assets (usually claimable over a period of time), and intangible assets (whose treatment differs based on the structure of the business that you choose).

On an ongoing basis, there will almost certainly be an obligation within your franchise agreement for you to provide annual financial statements, and periodic management accounts. Usually a franchisor would expect the annual financial statements to be prepared by a chartered accountant, however the view on management accounts depends on the nature of the franchise and the requirements of the franchisor. Using a computerised system tends to reduce the work involved in fulfilling these obligations. There may also be a right for the franchisor to enforce an audit on the finances of a franchisee if they feel it is appropriate.

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