Franchise accounting is the application of accounting for franchises. It functions similar to non-franchise accounting, but it takes the unique fees associated with franchises. Fees related to franchises like royalty fees, amortizing initial fees, and marketing fees, are taken into consideration.
Are fees you pay up front to start your franchise. While some people mistakenly think that the initial fee covers startup costs, it actually only pays for the right to use the franchisors name, branding, and other similar assets.
In many cases, franchisees have the option of paying off their initial fees over time, like they would any other loan. This is referred to as amortizing the initial fees. If this is the case, franchisees will need to keep track of these monthly fees until they are paid off.
Franchisees pay royalty fees to the franchisor each month. They are typically calculated as a percentage of revenue, and the franchisor collects them in exchange for allowing the franchisee to use its branding. It is similar to that of a membership fee.
Like royalty fees, marketing fees are a monthly expense. Franchisors spend lots of money on marketing, and since franchisees benefit from it too, they are required to pay a fee to cover marketing costs.