Most often, when we hear the term “audit” we imagine a visit from a stone-faced, intimidating IRS agent. Business owners may face other types of audits. Whether you own a start-up or a franchise, you can benefit from the professional audit services available at Whyte & Associates in Rancho Cucamonga, CA.
At the heart of the franchisor-franchisee financial relationship, is the issue of royalty fees. These fees are agreed upon and outlined in the franchise agreement. Fees are paid by the franchisee to the franchisor for the duration of their agreement. They are paid in exchange for use of the franchisor’s business model and branding.
Although royalty fees are a relatively simple concept, most complications between franchisee and franchisor occur in this area. The last thing that anyone wants is to find themselves in a dispute in which accusations are made. One of the ways in which franchisors and franchisees can better manage the issue of operations and royalties is through auditing.
Auditing of any kind, IRS or otherwise, can be stressful. For this reason, working with an experienced accounting and bookkeeping team can be beneficial. A royalty audit may be incorporated into a larger compliance program in which the franchisor or a representative visits the site. As it pertains to royalty fees, the audit will focus on financial documentation. Comparisons may be made with aggregated data from other local franchises, and key personnel may be interviewed at some point during the audit.
In many cases, issues with royalty fees stem from some type of minor oversight on the part of the franchisee. Bookkeeping and accounting are not easy tasks. They require a great deal of detailed information and timeliness. Franchisees are responsible for maintaining clear financial data and for submitting reports to the franchisor as outlined in the franchise agreement. You do not want to leave anything to chance in this area. The franchise opportunity can be very attractive and lucrative. With an experienced bookkeeping and accounting team in your corner, you can capitalize on the business model available to you while minimizing the risk of unnecessary auditing.
Our staff is happy to answer your questions. Contact us at (909) 575-0080.