One common financial statement for multi-location franchise owners is the consolidated financial report.
These reports are regularly prepared by franchise accountants using consolidation software and provide valuable information and insight into the health of the overall franchise.
Those unfamiliar with financial accounting may wonder what consolidated financial reporting is, what it includes, and why it’s even important to begin with. This guide is designed to help explain these and other important consolidated financial statements questions.

What Is a Consolidated Financial Report?

The word ‘consolidate’ means to organize separate parts into one unified whole. And, this is the basic concept behind a consolidated financial report.
A single location franchise owner uses financial reports to get an understanding of the finances for that specific business or location. This includes balance sheets that show assets, liabilities and equity, income statements that show revenue earned over a specific time period, and cash flow statements that show how cash is coming in and going out.
The consolidated financial report takes information from all of these individual reports to provide an overall performance picture. While it may sound complicated, consolidation software makes the task of creating consolidated financial statements quite simple.

What Is Included in the Consolidated Financial Report?

When and how financial statements are consolidated is dictated by the Generally Accepted Accounting Principles (GAAP), a framework that sets accounting standards, rules and procedures. GAAP principles are updated regularly making consolidated financial reporting a specialized accounting skill; these updates are also replicated in consolidation software. The benefits of GAAP is that by using a standardized procedure, results can be compared across companies, industries, and years.
In general, consolidated financial statements will contain all the information available in individual financial reports.
Franchise owners use consolidation software because preparing a consolidated financial report is not as straightforward as adding up the figures found in individual financial statements. This is because GAAP requires the elimination of inter-company transactions from statements so that they are not counted twice. For example, if a franchise receives a loan from another franchise or if there are sales conducted between two franchises, these figures would be eliminated by consolidation software to avoid double counting.

Why Is Consolidated Financial Reporting Important?

Consolidated financial statements can be prepared by an accountant but there are also many software options that can generate these statements. Consolidated statements are the only way to get a clear understanding of the total financial picture of combined entities. By aggregating financial figures using the correct GAAP procedure, franchise owners can determine the general health of a group of franchises and evaluate their overall financial standing.
For franchise owners with money invested in a franchise, consolidated financial statement can tell how well their investment is paying off. Whereas individual financial reports help assess and improve upon individual franchises, the consolidated financial report will provide information about the entire operation, highlighting any potential problems as well as demonstrating when further expansion is possible.

Consolidated financial statements also help others evaluate the health of the overall entity. This includes shareholders, creditors, and other resource providers.
While the calculations behind consolidated financial statement can be complex, the concept itself is relatively basic and the right consolidation software can make a franchise owner’s life much easier.