Franchise accounting guide What does a franchisor ask a franchisee to report, and when?

How are sales reported for royalty?

Weekly in most restaurant systems, monthly in most hotel and many service systems, and increasingly without the franchisee typing anything. Wingstop’s agreement lets the franchisor electronically poll the restaurant’s system for Gross Sales and debits royalty each Tuesday for the week ended the prior Saturday^[1]. Fairfield by Marriott’s fees on gross room sales are due by the 15th day after the end of each month^[2]. Either way, the franchisee’s job is to make sure the number the franchisor sees is the number the books show.

What can the franchisor already see?

More than most operators assume. The FTC Franchise Rule requires Item 11 of the disclosure document to say whether the franchisor will have independent access to the information generated or stored in your point-of-sale and computer systems^[3]. Where it does — Wingstop’s disclosure says it will^[1] — the franchisor’s royalty figure and yours start from the same register data. Differences then come from definitions, restatements and closed days, which is exactly where a franchisee should look first when the two disagree.

Which financial statements are due, and when?

Why does the format matter as much as the deadline?

Because the franchisor compares you with every other store in the system. A P&L that puts delivery commissions in cost of sales when the brand’s chart puts them in operating expenses makes your food cost look wrong in the benchmark, even though your books are right. Keep the brand’s chart as the backbone of the ledger, or keep a maintained mapping to it — not a spreadsheet rebuilt at each deadline. See a comparable franchise chart of accounts.

What are the franchisor’s audit rights?

Nearly every agreement lets the franchisor inspect and audit the records behind reported sales, recover any shortfall with interest, and charge the franchisee for the audit if the understatement crosses a threshold. In Wingstop’s agreement that threshold is 1% of Gross Sales^[1]; in Fairfield by Marriott’s it is 5%, and a pattern of under-reporting lets the franchisor require independently audited annual statements^[2]. Repeated or deliberate under-reporting is typically a default. Keep the weekly royalty calculation, the definition it applied and the register totals it came from together, so an audit is a matter of handing over a file.

What changes when you run several brands?

• Each brand has its own calendar, chart, deadlines and portal; nothing is shared except your team’s time.
• A store’s royalty week follows its brand, so two stores in the same entity can close on different weekdays — see the 4-4-5 calendar.
• Shared costs allocated to stores must be allocated the same way in every brand’s report, or the franchisors are comparing different numbers.
• Deadlines cluster at quarter and year end; the entity statements, the brand reports and the lender’s covenant certificate are due within days of each other.