How much accounting, HR is just right?
Every day as a franchisee is a balancing act. Peter Lancellotti is a franchisee of Seniors Helping Seniors in West Los Angeles. He says that when it came to doing W-2s and payroll for his 31 part-time workers, he needed to bring in help.
“If it wasn’t for Inspiring HR, I’d be buried,” Lancellotti says.
On the other hand, he does much of his own bookkeeping. He says bringing in outside help there would cost $40 an hour and add unnecessary complexity.
“My books take me about two hours on a weekend,” Lancellotti says. “Saturday morning I can get up and do QuickBooks.”
As with Goldilocks and the three bears, outsourcing accounting and human resources can be too little, too much or just right. Every franchisee has to find his or her own balance.
David Oden, president of Wichita, Kansas-based InfoSync, which handles accounting, payroll and reporting for 7,500 restaurants across the country, says the two basic rules of thumb are: Don’t outsource anything that requires a lot of managerial judgment and do read and understand the reports.
Oden says small franchisees shouldn’t let their payroll and accounting systems become disorganized. “They may miss an opportunity,” Oden says. “If you’re a smaller franchisee and you want to be acquired someday you need to have good financial records.”
The same holds true for getting a business loan, or even simply for running an efficient store. On the other hand, spending too much on accounting and HR can backfire as well.
“We’re more likely to see that in some of the larger groups and some of the groups who have been around a long time, where that’s kind of built up,” Oden says. “Sometimes they’re not efficient.”
Kane Polakoff, senior vice president of Pleasant Prairie, Wisconsin-based Quatrro FPO Solutions, says if you’re at the multi-million-dollar level and still reconciling invoices with Excel spreadsheets or even QuickBooks, it may be time to look into automatically integrated systems.
“The ones that are overdoing it, do they have too many processes in place?” Polakoff says. “Are they leveraging the technology to make it easier for them?”
So what’s the process for determining the right amount of accounting or HR support? Mindy Flanigan, owner of Richmond, Virginia-based Inspiring HR, says the first two questions she asks are “how many employees will you have within the next 18 months?” and “what state are you in?”
Labor laws break down more or less like you’d expect: California and New York are the most complicated states, with Virginia, Florida and Texas ranking as some of the easiest. Federally, the minimum standards are 11 employees for more stringent OSHA reporting, 15 employees for the Americans with Disabilities Act and pregnancy leave, and 20 for COBRA and age discrimination. By the time you reach 50 employees and have to comply with the Affordable Care Act and the Family and Medical Leave Act, you probably want to call in a ringer.
Flanigan says the ways the laws are written could terrify anyone, but smaller businesses can get away with a lot less support.
“Even if you put just one employee on payroll, there’s at least eight labor laws to comply with,” Flanigan says. “But they’re common sense things: Pay them minimum wage, don’t discriminate against anybody.”
One final lesson is learning your personal comfort zone. Some tasks are just too tough to tackle. Even Lancellotti, who does his own books most of the year, keeps a CPA on hand for tax time. “I couldn’t even do it all in one sitting,” Lancellotti says about preparing business taxes in the past. “I swore I’d never do that again.”
Getting it just right
Kane Polakoff of Quatrro FPO says he’s seen some franchisees overdo it with accounting, some underdo it, and some strike a balance. Here’s an example of each, from three of the firm’s clients.
Rhonda Spencer co-owns a CARQUEST store in Roosevelt, Utah. She was paying a local firm more than $7,000 a year to prepare monthly financial statements. The store reported a loss each month, which “just didn’t feel right.” It turns out the local firm was understating the store’s income by approximately $23,000. A new provider was able to help Spencer settle the books and reduce costs at the same time.
Mike George owns two grocery stores and two drive-thrus in the Columbus, Ohio, area. He spent 100 hours per month personally handling the recording and reconciling of day-to-day sales and purchase activities. Additionally, he retained a CPA to compile financial statements. A new process was developed to take 60 fewer hours a month and save $5,000 a year in accounting fees.
The Walker Auto Parts Group is a multi-million-dollar NAPA franchisee in North Carolina. Previously, the Walkers collaborated with the local CPA firm to prepare monthly financials for the company. As they grew from 23 to 31 locations, they partnered with an outside firm for key industry metrics, benchmarking tools, ratio analysis and customized reporting solutions.