TOPICALADVICE
FRANCHISE CLINIC
Our expert panel offers advice on a range of issues for franchisors
Phil Harrison (FCA) heads the franchise department at Morris & Co Chartered Accountants – bfa affiliates and accountants for several franchise networks – and has over 30 years’ experience in the franchise sector. Phil regularly shares his knowledge at training seminars held on behalf of the bfa.
I am repeatedly being asked by franchisees for a breakdown of the initial franchise fee that they pay when granted a franchise. Why are they asking for this information? Also, what is the effect if I change the amount of the fee?
Their accountant will probably ask your franchisees for this information, since part of the initial franchise fee will be in respect of initial training – perhaps assets and stock. The tax treatment of such items is different to the residual part of the franchise fee, which is an ‘intangible asset’. The initial training, etc can be deducted as a revenue expense in the franchisee’s accounts in the first year and the balance of the fee can be written off over the term of the franchise agreement. If the franchisee operates through a limited company, then this franchise fee amortisation is deductible for tax purposes. It is probably well worth your while doing the calculation to establish how much of the fee is for the initial training, etc, and how much relates to the ongoing support. In your own accounts, you may be able to defer part of the income if it relates to future years for services that have not yet been provided. If you change the amount of the fee, this should reflect changes in the initial costs and/or the ongoing training. New franchisees will apportion the new fee accordingly but the change will not affect existing franchisees. If a change in the fee reflects a change in ongoing support costs, then this will affect the calculation of deferred income in your accounts. In summary, carrying out this exercise can benefit both you as the franchisor and your franchisees from a taxation point of view.
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Sally Anne Butters is director of media at Coconut Creatives, a leading franchise recruitment marketing company.
I always see branded promotional give-aways on exhibition stands. Should I be making sure I have something like that on mine?
Whilst they can be attractive, and visitors will no doubt pick up novelty items such as stress balls or pens, there is no evidence to suggest that promotional goods persuade customers in their decision-making process to buy a product or service. When it comes to the decicion to purchase a franchise, these give-aways won’t exercise swaying power, but they can serve to enforce the company’s brand or image and make it more memorable. Offering something of real value, however, like an expert guide
with great advice on tackling a certain aspect of running a business, is an ideal alternative. You can either offer a PDF download to people who register their contact details with you or give a hard copy away on the stand, in exchange for a business card.
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