Pick one fair driver for each kind of shared cost, such as revenue for billing and software or new customers for sales. Apply it the same way every month, and record it with an intercompany entry between the entities. Write the method down so your CPA and any buyer can follow it.
What counts as a shared cost?
Anything one team or tool does for every location:
- central sales
- a billing or collections team
- finance
- the CRM and other software
- marketing that isn't tied to one site
If each location were on its own, it would have to pay for a share of these.
When every location is a separate entity, those costs usually land in one entity, often a parent or a management company, and have to be charged out to the others.
Which driver should you use?
Choose the one that best explains why the cost exists:
| Cost | Common driver |
|---|---|
| Billing and collections team | Revenue collected |
| Sales | New customers |
| Software priced per user | Users at each location |
| Rent for a shared office | Headcount or square footage |
Revenue is the simplest and the most common. It's easy to get and hard to argue with.
What does it look like with numbers?
Say the shared billing team and software cost $18,000 a month, allocated by revenue collected:
| Location | Collected in August | Share | Allocated |
|---|---|---|---|
| Denver LLC | $184,200 | 34.9% | $6,282 |
| Phoenix LLC | $139,900 | 26.5% | $4,771 |
| Portland LLC | $203,700 | 38.6% | $6,947 |
| Total | $527,800 | 100% | $18,000 |
Each location entity records its share as an expense, and the entity that paid the bills records the same amounts as a receivable or as management fee income.
How should it be recorded?
With an intercompany entry in both sets of books, on the same date and for the same amount. Settle the balances regularly, monthly or quarterly, by actual transfer, so intercompany accounts don't grow for years.
One question to settle with your CPA first: is this a straight reimbursement of cost, or a management fee with a markup? The tax treatment differs, and related entities are usually expected to charge each other what unrelated businesses would.
A written management or cost-sharing agreement between the entities helps. It explains the method to your CPA, your lenders and anyone who buys a location later.
What goes wrong most often?
- Changing the driver when one location has a bad month. Consistency matters more than precision.
- Allocating costs that clearly belong to one location. Charge those directly.
- Forgetting the other side of the entry, so the intercompany accounts never agree.
Tax and legal treatment of intercompany charges varies. Your CPA should approve the method before you use it.
Paycove gives each location its own Stripe account and books, and reports what each one collected, which is the number most allocations start from.
Book 15 minutes