Chapter Two
Accounting & Insurance
Your Franchise Operations Manual
HIRING AN ACCOUNTANT
If you do not already have an accountant, it is very important that you hire one before you open your store. Explain to him that you will want to retain his services even after the store is open.
In selecting an accountant, obtain several references from individuals in your community who are knowledgeable in these areas. For example, you may wish to request names of qualified accountants in your area from your banker or other advisors. Interview each one to determine their knowledge, experience, and fees, and also your ability to work as a team.
Your accountant should be able to advise you on:
Proper record keeping. This is important not only because it is a federal requirement (in the United States) but it gives your accountant access to important financial and statistical information and it will tell you exactly what is happening with your business.
How to take advantage of all legitimate tax deductions.
Spend time with your accountant as soon as possible in order to properly structure your operating entity, and all aspects of your personal and corporate tax situations.
U.S. FEDERAL AND STATE ACCOUNTING REQUIREMENTS*
Before you open any business, there are a few federal and state requirements you must fulfill. Be sure to consult your accountant, as there may be other federal or state requirements that are not listed here.
- Federal Identification Number
Have your accountant complete Form SS-4 to apply for your Federal ID number.
2. State Identification Number
A majority of the states require all business owners to file for a State Identification Number. Your accountant will know how to apply for one in your state.
3. State Sales Tax Identification Number
Most states also require all business owners to file for a State Sales Tax Identification Number. Again, your accountant will know how to apply for one in your state.
4. Trade Name or Fictitious Name Registration
Most states require businesses to register if they use a trade name or a fictitious name that is not the legal name of the person or entity conducting the business. Since you will be operating under the name "Half-PricedGranite" and not your name, you will be using a trade name. DAI requires you to use your store number in the trade name registration, so your trade name would read "Half-PricedGranite". Your accountant will know how to register a trade name in your state.
*For specific information pertaining to the accounting practices for countries OTHER THAN the U.S., please contact the Accounting Department.
COMPANY REQUIREMENTS
There are several requirements you must complete. Each is discussed below.
Commercial Checking Account
Once you have received your Federal Identification Number, go to a local commercial bank and establish a Commercial (or Business) Checking Account. Note: Most banks require the Federal ID number in order to open a business account.
It is important to establish your business account as soon as possible, because the expenses you incur, even in these early weeks, may qualify as business deductions. Make sure the bank you are considering can handle Electronic Fund Transfers (EFTs). An EFT account allows for automatic withdrawals of funds by a person or corporation other than the owner.
Pre-Authorized Account
A pre-authorized account is an account for which you give authorization to the Company to automatically withdraw funds. To establish a pre-authorized account, you need a checking account at a bank that allows for electronic fund transfers. This account may be your regular business account or one specifically set up for pre-authorized withdrawals only, whichever you choose.
Pre-Authorized Forms
Once a pre-authorized account is established at the bank, you must give the Company authorization to withdraw funds. You must complete a separate pre-authorized form for each store.
- Fill out the pre-authorized form
- Manually sign the form in ink. Signatures that are rubber-stamped will not be accepted.
- Attach a voided check from your pre-authorized account. If checks are not yet available, you could also attach a “spec sheet” that you can obtain from the bank.
- The spec sheet must show the bank's electronic transfers (sometimes called an "ABA #") and your account number.
- Forward all three parts of the form and the voided check/spec sheet to the Company.
- Once processed, the Company will send a copy of this form to your bank.
Withdrawals
Your pre-authorized account is not activated until your store opens. Once your store opens, the Company will withdraw royalty and advertising fees from this account on a weekly basis. You will receive indication of when regular Company withdrawals will begin. Withdrawals usually start two to three weeks after the notification is sent and will be retroactive to the store’s opening date. From then on, withdrawals will be made every Tuesday.
Your pre-authorized account will also be used for equipment leasing payments, if applicable. You may also charge up to $500.00 (per open store) for miscellaneous promotional and equipment items as long as Company accounts (for all stores) are current for the prior six weeks. Equipment lease payments are withdrawn monthly and miscellaneous promotional or equipment payments are withdrawn weekly.
If you signed a Franchise Agreement after December 31, 2004, the Company and its affiliates can make withdrawals from your account for one store for amounts you owe on another store.
All withdrawals are shown on your weekly Combo Report (discussed later in this chapter). You will also receive a copy of every transaction slip showing all withdrawals with your monthly bank statement.
Insufficient Funds
A fee of $50.00 will be charged to your pre-authorized account each time the Company is not paid for payment of royalties, advertising fees, miscellaneous invoices, or equipment lease payments.
Changing Your Pre-Authorized Bank Account
If you intend to close your current account and open a new account, contact the Company. The Company will assist you in determining a date to close the old account, so EFTs are not returned for insufficient funds and payments do not become overdue.
The Company will send you a new pre-authorized form. Submit the completed pre-authorized form and avoided check to the Accounts Receivable section of the Accounting Department at least three weeks before your account is to change.
You must leave your old account open and continue to deposit money into it to cover withdrawals until you are notified in writing by Accounts Receivable of the date of the first withdrawal from your new account.
A $50.00 fee will be charged to your pre-authorized account if the above procedure is not followed. This $50.00 fee is in addition to the $50.00 fee for each returned EFT.
Note: Collections and Accounts Receivable are the only departments that can make a change in your pre-authorized account.
When Pre-Authorized Accounts Are Not Available in Your Country
If EFTs are possible in your country, you must comply with whatever measures are necessary to establish a pre-authorized account. If EFTs are not possible, you must make other arrangements with the Accounting Department prior to ordering your equipment. Your options might include:
Deposit monies due, in local currency, in the local bank account of the franchisor.
Wire monies due, in U.S. dollars, to the franchisor.
*For further details, contact the Company.
SENDING CHECKS TO THE COMPANY
There will be times when you will need to forward a check to the Company. You will be instructed to whom the check should be made payable and if payment needs to be a certified or bank check, or if a personal check is acceptable. Regardless of the type of check, note your name and store number on every check you forward to the Company. Send checks to the attention of a specific individual and/or a specific department when possible. These two measures will help ensure your account is credited properly.
Insufficient Funds
You will be charged a $50.00 fee for every check returned for insufficient funds.
INSURANCE
Insurance is an important part of your business security since it will help protect you in case your property is damaged, such as due to a fire, or a customer sues you over alleged damages, (e.g. he is injured on your premises). You will want to obtain primary coverage for the following:
Premises Liability - protects you in case of property damage, e.g., caused by a fire.This should be Property Coverage: protects you in case your property is damaged, e.g., caused by fire, theft, water damage, etc. This includes your stock, equipment, furniture, fixtures and Tenant’s Improvements.
Comprehensive General Liability (includes products liability) - protects you in case you are sued by a customer for damages (injury on premises)
Business Interruption Insurance - Replaces your Profit and continuing expenses after a loss has occurred during the period of restoration.
Employment Practices Liability Insurance (EPLI) - protects you in case of a sexual harassment or discrimination lawsuit.
Worker's Compensation - check your local laws to see what minimum amount of compensation coverage is required.
Requirements
You must purchase the level of insurance required by your lease, the state in which your store is located, and the Company. It is your responsibility to investigate and fulfill the insurance requirements of your lease and your state. The Company must approve carriers.
You must carry statutory worker's compensation in the minimum amount required by law and comprehensive general liability, including products and completed operations coverage. The minimum liability amount must be $1,000,000.
If you use any motor vehicle in the operation of your store, you must carry business auto coverage, including owned, hired and non-owned vehicle liability insurance in the minimum amount of $1,000,000 (in addition to the $1,000,000 coverage discussed above).
You are required to name the Company as an additional insured. If you are located outside of the U.S., you must also name your particular franchisor and all the affiliates of your franchisor as additional insured’s. Usually, adding the language "and any affiliates ATIMA" ("as their interest may appear") to the list above will be acceptable to most insurance companies. The insurance carrier must be rated A 10 or higher by the A.M. Best Rating Company.
If you lease equipment under the Company’s leasing program, if available, you must purchase property and liability insurance covering the leased equipment.
* The Company may alter its insurance requirements and you must comply when you receive notice.
Certificate of Insurance
A Certificate of Insurance, listing additional insured’s, must be submitted to the Company. You must direct your carrier to provide the applicable endorsement. If your insurance information changes, a new Certificate of Insurance and new endorsement must be forwarded to your Coordinator. An original endorsement is required, however, a photocopy of the Certificate is acceptable.
INSURANCE PROGRAM
The Company may develop an Insurance Program to help you secure appropriate insurance coverage for your store. All approved carriers must meet the Insurance Program specifications.
The Insurance Program ensures that carriers will (1) provide you with insurance coverage that will meet the requirements listed in your Franchise Agreement; (2) name all the appropriate additional insured; and (3) provide insurance certificates directly to the Company.
TAXES
According to the Franchise Agreement, you are responsible for all costs of operating your store, including taxes. General information regarding sales tax in the United States is discussed in this section. You are also responsible for any taxes, which are similar to a sales tax, whether state law provides they are imposed on you or the seller of the goods and services. Examples of these other taxes include the value added tax (VAT), gross receipts tax (GRT), and use tax. If the Company must pay any VAT or GRT or other tax directly to the taxing authority on franchise fees, royalties, advertising fees, transfer fees, equipment lease payments, or other payments you make to them, the amount of the tax will be passed on to you. The tax amount will be withdrawn from your pre-authorized account at the same time royalties, advertising fees, or other payments are withdrawn or invoiced to you.
Be sure to obtain details regarding taxes in your country, state/province, county, municipality, etc. either from your accountant or directly from a government office.
Sales Tax - United States
It's important that you are familiar with the sales tax rules in your state. The amount charged for sales tax, how items are taxed, and what types of items, are subject to sales tax vary depending on where your store is located. Listed below are some generally accepted rules for the imposition of sales tax on the items sold by Half-PricedGranite. Be sure to obtain details of your state's rules, either directly from the state or from your accountant.
Retail Sales – Generally, all retail sales of items sold out of the store are subject to sales tax.
Sales to Employees – Generally, all items sold or furnished to employees in conjunction with their employment are subject to sales tax (based upon the sales or fair market value of the sale, whichever is greater).
Sales Price – “Sales Price” is the total amount for which a taxable service or product is sold. This includes any services that are part of the sale of the product, valued in money, whether paid in money or otherwise. In addition, sales price may include any amount, for which, credit, is given to the purchaser by the seller, (including giveaways.)
Package Price – When several items make up a package, if any one of the items in the package is taxable, then the complete package is taxable.
Coupons or Certificates – When coupons or certificates are accepted as part of the sales price of any taxable item, the value of the coupon/certificate is often excludable from the tax as a cash discount regardless of whether the retailer is reimbursed for the amount represented by the coupon/certificate. You must keep records of the value of coupons at retail in the event of a sales tax audit.
Barter Exchanges – Barter transactions may be considered taxable sales. The taxable amount is the fair market value of the product or service you receive.
THE BUSINESS WEEK
The business week for Half-PricedGranite runsMondaythrough Saturday.
RECORDING BUSINESS ACTIVITY
Once your store opens, you'll need to record many items in order to know what's happening with your business. You'll want to record items like sales, deliveries, amount of product used, etc.
The Company provides you with forms to record the information necessary to track your business on a day-to-day basis. You'll want to record items like sales, deliveries, amount of product used, etc. The Company provides you with forms to record the information necessary to track your business. These forms are attached as exhibits to Chapter 11 – “Paperwork & Controls”.
Since this paperwork is so comprehensive, an entire chapter of this Manual has been devoted to it. See Chapter 11 – “Paperwork & Controls” for complete information.
REPORTING OF SALES
You are required to report your sales figures to the Company on a weekly basis. Report all sales and cost information in your local currency.
All figures reported are taken from your Weekly Inventory & Sales Report (WISR). Figures are weekly totals. File this report no later than 3pm MST on the Thursday following the business week. Sales figures can be reported via telephone directly to the Company, or through the Point-of-Sale Computer System.
Entering Information
In order to enter information into the system, two numbers are needed: a valid store number and a personal identification number (PIN). You will select a PIN and give it to the Company, who will enter it into the system.
You may change your PIN at any time by contacting the Company. It will take 24 hours for the new PIN to become active in the system.
An invalid store number/PIN combination will not allow access to the system.
Point-of-Sale Computer System
Sales figures can also be reported via your personal computer. To transmit sales electronically to the Company you need point-of-sale software, a modem, and a PC communications package. Youmust use only approved software to communicate with the Company. See Chapter 11 - "Paperwork & Controls" for details.
Estimation of Sales Figures