Franchise income and costs

Franchise income and costs

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I have a new client who has income from his trade but also income from two franchises he has sold that relates to his trade and he plans to sell more in the future. Apart from the franchise fee he also receives an on going commission from the franchises. In preparing his accounts I have advised the importance of keeping expenditure spent on his own trade separate from that spent on preparing a franchise to maintain his asset register and the value of his balance sheet. Is there actually any requirement to show franchise income separately from trade income? My concern is that although he receives additional income from the franchises his expenditure on items such as equipment, marketing and stationery (all part of the makeup of the franchises) will look disproportionate and could encourage an enquiry. Thanks in advance for your comments

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By bac1703
22nd Sep 2014 12:13

I think it will be good to be able to show what income and expense relates to each source of income (his own business and each of the franchises) for the benefit of your client so he can know what activities are driving costs and profitability.

From a statutory point of view, you may want to read up on reporting requirements for investment income (as I may classify the franchises as investment income - if they can be treated that way). As an investment, it will be a separate line item on the P&L and Balance sheet.

 

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