Financial Reporting Requirements

Financial Reporting Requirements

Statement Requiring Financial Reporting

Sub-Zero Franchising requires Financial statements and the following defines what is required.  The Franchisor is required by the FTC to audit and publish our books annually.  However, your books are confidential and are not published.  Our main purpose is to make a better system and more profits for the franchisees.  Our first concern is always the franchisee.   Attached at the bottom of this document is an excerpt from the franchise agreement.   As of May 15, 2024, we will be enforcing the requirements. 

Reporting 

  1. Monthly P&L trailing 12 months in CSV format. 
  2. Please use the Standard Chart of Accounts.
  3. Exceptions for the Chart of accounts are accepted.  The purpose of the P&L  report is not for taxes, it is to see if categories are out of target. We want to see Owners Benefit separated from the actual store expenses.  
  4. Reports are due by 15th day after the end of the month.

Why Would You Want to Report?

  1. Benchmark store to store
  2. Monitor Changes such as Rent, Vendor, Nitrogen, Cream etc...
  3. Maximize Profits
  4. Exit ( You can't exit if you don't know your numbers)  The goal of all businesses is to do 2 things, Generate income and at some point sell.  Our Experience is we can sell stores fairly quickly if we know the numbers.  Time kills all deals and waiting to update books with limit your options.

REPORTING FORM to upload reports

Carat 

We are looking at different options to get compliance. From talking to other franchisors on how to get compliance they gave 2 ways;  Benefit or Penalty.  We have been weighing the different options.  What I've decided is that we will give some benefit if we get 70+%  compliance by June 15th.  After Jun 15th we will start assessing a $100 per month fee. If there are 6 months of noncompliance a default notice will be considered.  

Categories or Buckets

As a whole the store/mobile will have income.  That income will vary obviously. We want to do is set some goals.  To be honest we want owners benefit to be as large as possible.  However, for this report we want owners benefit to be excluded.  This is the purpose of Profit Keeper is to normalize your P&L so can see the true expenses of the store and how they compare from store to store.  In general, there will be some rules of thumb of how the percent breakout of the store revenue will end up.  These are goals and guidelines and as time goes on we will adjust to prove the financial model thoroughly.  
      Percent of Income: (Not Actual Numbers, based on projections created by Rob West)
  1. COGS (20-25%)
  2. Rent (10-20%)
  3. Labor (30%)
  4. Operating Expenses 
  5. Owners Benefit (Income)

Implementing a system that requires franchisees to record and report their financials back to the franchisor offers several benefits:
  1. Standardization and Compliance: A standardized financial reporting system ensures that all franchisees adhere to the same accounting practices, which helps maintain compliance with financial regulations. This uniformity also simplifies the process of aggregating financial data across the entire franchise network.
  2. Performance Monitoring: Regular financial reporting allows franchisors to monitor the performance of individual franchisees more effectively. This helps in identifying which locations are performing well and which ones might need assistance, enabling targeted support and interventions.
  3. Benchmarking: By collecting financial data from all franchisees, franchisors can establish benchmarks for various performance indicators. This helps in setting realistic goals for franchisees and also fosters a competitive spirit within the franchise network.
  4. Financial Transparency: Regular financial reporting promotes transparency within the franchise system. It ensures that the franchisor has a clear view of how each franchisee is managing their finances, which is crucial for maintaining trust and ensuring the long-term success of the franchise network.
  5. Strategic Decision Making: Access to comprehensive financial data across the franchise network allows franchisors to make more informed strategic decisions, such as where to focus marketing efforts, where to open new locations, or where to make operational improvements.
  6. Risk Management: Financial records help in early detection of potential financial issues within individual franchises, such as cash flow problems or unsustainable debt levels. Early detection allows for quicker corrective actions, thus mitigating risks that could affect the broader franchise system.
Attracting Investors: A franchise system with robust financial reporting is more likely to attract potential investors or partners, as it demonstrates a commitment to transparency and accountability.
Overall, requiring franchisees to maintain accurate financial records and report them to the franchisor is integral to maintaining the health and viability of the franchise system.



Excerpt from the Franchise Agreements

STATEMENTS, RECORDS AND PAYMENTS
(a)
Records. Franchisee shall, in a manner satisfactory to Sub Zero, and in accordance with generally accepted accounting principles, maintain original, POS digital files, vendor receipts, other records, accounts, books, data, licenses, contracts and supplier invoices (collectively “Records”) that accurately reflect all particulars relating to Franchisee’s business and such statistical and other information or records as Sub Zero may require, during the term of this Agreement and for two (2) years after termination or expiration hereof. Upon Sub Zero’s request, Franchisee shall furnish Sub Zero with copies of any or all product supply invoices reflecting purchases by or on behalf of the Franchise. In addition, Franchisee shall compile and provide to Sub Zero any statistical or financial information regarding the operation of the Franchise, the products and services sold by it, or data of a similar nature including, without limitation, any financial data, as Sub Zero may reasonably request for purposes of evaluating or promoting the Franchise or Sub Zero Stores or Mobile Operations or Catering Franchises in general. You shall use our standard chart of accounts in all bookkeeping and accounting for the Franchise. We may designate specific systems and software and specific vendors that you must use to operate the Franchise and to report business and financial information to us, including without limitation monthly and periodic sales, cost of goods and services, key performance indicators, customers, and events. All data provided to Sub Zero under this Section 7 shall belong to Sub Zero and may be used and published by Sub Zero in connection with the Sub Zero Stores, Mobile Operations, and Catering Franchise.
(b)
Electronic Access. Sub Zero may designate certain systems, including electronic systems and software that provide access to Sub Zero, to be used in the maintenance of the Records and reporting. Such systems may have components or software that is available only through Sub Zero, an affiliate or designated suppliers at a fee. Franchisee acknowledges and agrees that Sub Zero has the right to access and use all such electronic Records, reports, and the information and data that are contained therein.
(c)
Electronic Funds Transfer. Franchisee agrees to participate in Sub Zero’s then-current electronic funds transfer and reporting program(s). Franchisee authorizes Sub Zero to initiate debit entries and/or credit collection entries to Franchisee’s designated primary business operating checking or savings account (“Designated Account”) for the payment of all fees, royalties or other amounts due hereunder to Sub Zero or its affiliates. Franchisee shall, at its sole cost and expense, instruct its bank to pay all fees, royalties or other amounts due hereunder to Sub Zero or its affiliates directly from the Designated Account, and promptly upon Sub Zero’s request, Franchisee shall execute or re-execute and deliver to Sub Zero a pre-authorized check form or such other instrument or draft Sub Zero’s bank may require. In connection with this requirement, Franchisee shall fill out and sign an Authorization for Electronic Funds Transfer form, in the form required by Sub Zero or such other form as the relevant financial institutions require. Franchisee shall ensure that sufficient funds are available in the Designated Account to make all payments due hereunder by Wednesday of each calendar week, or upon such date as provided in the Confidential Operating Manuals from time to time.
(d)
Weekly and Monthly Statements. Franchisee shall submit weekly revenue and fee reports as outlined in the Operating Manuals. No later than the fifth (5th) day of each month Sub Zero shall have Franchise Agreement received from Franchisee, on forms satisfactory to Sub Zero, statements detailing the fees and royalties due to Sub Zero during the preceding month itemized by revenue producing activity as specified from time to time by Sub Zero, the Gross Sales for the prior month and such other information as Sub Zero may require signed and certified as true and correct by an authorized agent of Franchisee.
(e)
Audit. Sub Zero and its designated agents shall have the right to examine and audit such Records, accounts, books and data upon reasonable notice and during regular business hours. If such inspection discloses that the Gross Sales during any scheduled reporting period exceeded the amount reported by Franchisee as its Gross Sales by three percent (3%) or more, then Franchisee shall bear the cost of such inspection and audit and shall immediately pay any such deficiency with interest from the date due at the lesser of 1.5% per month and the highest rate permitted by applicable law.
(f)
Financial Statements and Tax Reports. Upon Sub Zero’s request, Franchisee shall furnish Sub Zero with a copy of each of its reports and returns of sales, use and gross receipt taxes and complete copies of any state or federal income tax returns covering the operation of the Franchise, all of which Franchisee shall certify as true and correct. Upon request, Franchisee shall deliver to Sub Zero financial statements, including tax returns and profit and loss statements, in a form satisfactory to Sub Zero. In addition, within ninety (90) days after the close of each fiscal year of Franchisee, Franchisee shall furnish to Sub Zero, at Franchisee’s expense, a profit and loss statement prepared on an accrual basis for such fiscal year and a year-end balance sheet. Sub Zero will have the right to disclose data derived from such reports without identifying Franchisee or the address of the Franchise.

Standard Chart of Accounts 


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