The Right Stuff About Buying a Franchise – Lesson 5: Your Accountant is God

Yes, I mean it.  It is not rhetoric or hyperbole but is truly grounded in reality.  Your accountant or financial adviser is God (or very close to it!).

I began with the best of intentions.  My former accountant was a well-meaning guy with a number of small businesses in his portfolio.  His specialization, however, was the not-for-profit sector.  Their philosophy and that of this budding franchisee could not have been more different.

Believing that I should ground myself in all aspects of the business, he encouraged me to purchase bookkeeping software and complete all of the data entry associated with paying suppliers, receiving books at the store, processing credits, and so on.  Unfortunately, not only did I struggle with accounting at college, my desire to undertake such laborious processes was even more underwhelming now that I was distant from academia.  Thus, I let the bookkeeping drift while hoping that it would sort itself.  While the elf may have repaired all of the boots in the old fairytale, nothing of the sort would occur for me.

You see, I am a book keeper, not a bookkeeper!

Before telling you about the inevitable disaster that loomed over me, allow me to digress briefly to discuss the value of a franchise-familiar accountant prior to making the decision to buy a franchise.  In short, an experienced financial adviser is worth gold to you.  They can review the most important metrics underlying the success or failure of your proposed business and put their finger quickly on the flaws in your thinking.  If it is an existing business, they can spot whether the owners have been paying themselves a reasonable salary, whether they have or have not been squirreling funds between accounts to create the perception of inflated profits and revenues, and let you know if the value placed on the goodwill of the business is reasonable or overstated.

Oh, how I wish I had received that type of advice at the time!

Okay, back to my disaster.  While I was keeping up with paying my suppliers, my cash reserves were rapidly diminishing.  Cash is the lifeblood of any business and is the very heart and soul of every small business and franchise.  Despite sales revenues looking okay, I was losing the battle to stay afloat.  In addition, while not completing the critical accounting tasks, I was also neglecting to return overstocks to suppliers, a fatal sin for any bookseller.

I was just about ready to throw in the towel when I received a phone call from the franchisor.  A new employee in the accounting department had spotted a major error.  Every month since I had purchased the business I had been sending in a check to cover my royalty payments and advertising levies.  At the same time, my franchisor had been direct debiting my bank account for the exact same amount each and every month.  I had been paying the franchisor double and no one had spotted it.

When the head office employee stated that I was about to receive a refund of almost $30,000, I could hardly speak, such was the feeling of relief.  When I phoned my wife, who teaches part-time rather than working in the franchise, she cried.  While not nearly as naturally emotional as I tend to be, she had been sharing the same strain.  We shared tears of relief.

Now, I have an accountant who services the financial needs of three other stores in this franchise network in addition to mine.  He knows all of the ins and outs, can organize the leasing of new equipment, and can complete the critically important financial deliverables on which the franchisor relies.  Not only that, Doug drops by the store every few days to pick up my paperwork and discuss any financial matters that either he or I need to resolve.  He makes sure I pay my taxes on time, processes the salaries of my staff, and keeps a supportive eye on me, the financial luddite.

So, while it may be an overstatement to equate Doug with the holy father, it is nonetheless that he was an overdue answer to prayer.  For your own peace of mind, find a Doug at the outset!