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Taking stock

Written by James Thomas on Friday, 08 January 2021. Posted in Finance

Many businesses regularly do a stock take. It makes logical sense to understand what assets are on the books and how this inventory compares to what’s really in the shop or warehouse.

Taking stock

Many businesses regularly do a stock take.  It makes logical sense to understand what assets are on the books and how this inventory compares to what’s really in the shop or warehouse.  Conducting an audit is an independent examination into the company’s financial affairs to ensure that they are correctly reflected.

Auditing is good practice for franchisors and some organisations mandate franchisees to have audits regularly.  It can head off any disputes, as an independent third party sets out the facts.  It can also prevent franchisees ferreting away profits out of sight from a franchisor.  Therefore, auditing is a particularly useful exercise for van franchises, some retail franchises, or any other business where cash is often exchanged for goods or services.

As accountants we are also seeing plenty of genuine situations where an audit can be helpful.  In recent times, commercial landlords have needed reassurance that their retail clients have a stable business and can still afford to pay the rent.  Similarly, suppliers are increasingly looking to ensure they will be paid for their goods and services.  Third party lenders such as asset finance companies also need to know their loans can be repaid.  An audit checks the financial statements of an organisation to confirm they are true and fair and not materially misstated and can provide reassurance in these cases.  

Audits can also be helpful when it comes to selling a territory.  At the end of a franchise term, an audited franchise provides a good basis for sale, where prospective purchasers know ‘what’s what’ in the business. It could make a territory more attractive to a new franchisee if they know all the accounting information is independently verified.

The Pandemic has influenced accounting too.  The past year has seen so many changes where accounting practices have the potential for errors or more deliberate falsifications: from the introduction of the ‘widely abused’ furlough scheme, to loans and other financial support for businesses, plus an increase in cyber security risks where staff have been working remotely.  Due diligence from everyone has suddenly gained an increased importance and so there has never been a better time to include auditing within your franchise practices.  The penalties are high if mistakes are made and not rectified.

If your organisation legally requires an annual audit or is considering a voluntary audit, to reassure third party suppliers for example, it is key to use an organisation experienced in your sector. 

At d&t we have extensive experience in franchising, plus 20 years’ auditing experience in the construction sector and ten years in retail, plus wide-ranging knowledge of the healthcare and many other industries.  

Due to the numerous challenges the various lockdowns have introduced, moving forwards we believe auditors will need to be even more thorough.  Selecting the right auditor to take stock of your franchise will ensure your financial statements are checked comprehensively and that they are true and fair and demonstrate transparency for all involved.

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About the Author

James Thomas

James Thomas

Having worked within franchise businesses in the past, James benefits from the knowledge of working both within a system and supporting them. Now as Commercial Manager at d&t, James heads up business development and marketing strategy, working with over 100 franchise brands.

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