This blog is the first of 5 blogs about how as a franchisor you can support your franchisees to manage their business finances.
I would imagine that not all of your franchisees came into your business to spend lots of time focusing on the finances and it may just not be an area of strength of something they are particularly skilled at so the more you can help them to get this right and to generate good habits from the outset, the more profitable and successful they will be – and this is obviously good for everyone.
So, this first blog is really about when a new franchisee joins you and how you can help them at that critical first stage.
So they are at the stage where they are full of enthusiasm and excited about their new business and it’s potential. This is also the stage where they really need to keep their feet on the ground as they haven’t got a real business yet – they have got to build it. They need to be working carefully through the practical considerations and you can help with this.
So whether it’s through the initial meetings, induction or training sessions – there are some key areas to be covered. Here is a list of the key ones – for your franchise you will of course need to tailor this advice for your specific industry and business.
As of the franchisee recruitment process and your marketing materials, you will have shown financial projections for a typical franchise. These of course should look positive to your prospective franchisees but they also need to be realistic for a typical franchisee. You don’t want your franchisee to be disheartened early or later on in the business when they realise that those financial projections were pretty unrealistic and based on an unusually successful franchisee with some exceptional circumstances.
Budget for the 1st year
Work with them to set a realistic budget for the first year. It doesn’t have to be complex – predicted turnover by month and predicted cost of sales and overhead expenditure they can be expected to incur based on their budgeted turnover.
This should be done with them rather than something which the franchise provides as they need to own it and understand it themselves. Ideally, get them to create it themselves with your support and a template.
Once they have this budget in place, they should be encouraged to review their progress against this budget on a monthly basis – are they doing better than expected or less than expected? – it is not the only indicator but it is a good indicator of their progress in the franchise and gives you as the franchisor useful information about where they may need support.
Hopefully you will have told your new franchisees that they need to have a certain amount of working capital to get their business up and running.
In addition to paying their franchise fee, they will need to be able to pay their costs of running the business at the early stages when their income is unlikely to cover it. So they are unlikely to have positive cashflow.
If they are aware of the need for working capital from the outset, they can have the funds already in the business or ready to draw upon from other sources to keep the cashflow positive during those early days.
So using the simple budget talked about earlier, work with the franchisee to convert this into a cashflow forecast for the first year so they can see at which stages they are unlikely to have sufficient funds in their bank account so they can plan for this. The reality is of course that not everything will go exactly as has been forecast but it will encourage your franchisee to start thinking about their cashflow from day one and to keep monitoring and updating their forecast.
Have a contingency fund
So with your franchisees hopefully all fired up and positive about their business, they may not want to consider the ‘what if’ scenario that the business doesn’t take off as they expect or if there is a significant life change e.g. serious illness.
However, they should always have a contingency fund or personal savings set aside that they can draw upon to covering their own living costs for a period of time should they need to.
Check with them that they do have this in place as part of your recruitment process.
Getting their pricing right
In your franchise, there may be a standard pricing structure for your product or service that applies across the franchisees or your franchisees may have the flexibility to determine pricing themselves.
However, getting the pricing right is obviously critical to their success and profitability and so some time spent at the outset here is really valuable. Geographical location of the franchise may mean that pricing can’t be standardised across the whole franchise.
As part of the process, get your franchisee to do some market research in their area to find out exactly what their competitors are charging for their products and services and compare this to their proposed pricing structure and review and adjust if this is needed.
Even if there is no change from the standard fees and charges needed, this will give the franchisee confidence in their own pricing and a great awareness of the competitors in their local area.
Reviewing and monitoring
As a franchise, you will be wanting to see financial and performance information from each franchisee at least monthly.
However, for that first year, a regular phone call, skype call or meeting in their diary to talk through the business finances with a member of the Head Office team with the new franchisee is critical and can be a lifeline.
This structure will encourage your franchisee to be focusing on their finances, to have information up to date and to deal with any challenges rather than burying their head in the sand. It will help to identify areas of further support and training they may need to build their business.
For those franchisees doing very well, you can find out what they are doing to achieve these great numbers and share these successes and how they have done it with other franchisees so that others also benefit.
We hope this blog illustrates how Franchise HQ can support all franchisees in different ways to manage their business finances well because there are obviously significant benefits for both the franchisees and the franchisor.
This blog is part of a series of 5. Please see the links below to all 5 parts of this series of blogs on how you can support your franchisees with their business finances.
We have previously been franchisees as well as now being in a position as a bookkeeping practice of supporting franchisees and franchisors with their finance and bookkeeping needs. The Bookkeeping Department are committed to helping those in the franchise sector to manage their business finances effectively. If you have any comments on this blog or think we can help in anyway, please do get in touch www.thebookkeepingdepartment.co.uk or email firstname.lastname@example.org
If you are running a franchise business or in the research stage of buying a franchise, you should register for our next webinar – 6 Simple Steps To Great Financial Management.
The webinar is run by ourselves and Emma Austin FCMA CTA from Enterprise Tax.
It’ll be an informative and interactive session to help business owners manage their finances more effectively and to make more profit.
Register for free here: https://zoom.us/meeting/register/1ab71e5f370284eb66858a512be5123a
Please contact us for further details or for the dates of future webinars.