This blog is the second of 5 blogs about how as a franchisor you can support your franchisees to manage their business finances.
Lots of new business owners won’t have the experience or expertise in managing their finances and as a franchisor you can help them become successful (which is good for you too of course) by providing really good support in this area of their business.
So this blog is about 10 really good financial habits that if you can instil into them from day 1 will really help them.
Habit 1 – Getting cash into the business as soon as possible
If the franchisee is running a cash business like a coffee outlet, a shop or hairdresser then they are already taking the money from customers as soon as possible. If, however, they have commercial customers buying bulk from them then they could have the opportunity to ask for some of the money upfront to help keep the cashflow positive.
If they are providing a service then they could potentially charge for some of the fees up front e.g. digital marketing agencies do this often and take stage payments through the project rather than waiting until the end to invoice the customer.
Some businesses wait until the end of the month and do all their invoices in one go when they could have invoiced and got paid earlier in the month and got paid earlier.
So, whichever type of business your franchisees are in, you can help to make sure they understand the importance of positive cashflow and of getting the money back into their business as soon as possible and how they can do this in their business.
Habit 2 – Keeping up to date with the bookkeeping
Doing at least monthly bookkeeping is essential to running a successful business. Not only does it give business owners a sense of control of their business and peace of mind, but it means that they can see exactly how the business is performing financially and make decisions based on accurate financial information. As the franchisor, you can help them to do this by requiring them to provide their completed accounts to Head Office monthly by a given deadline. If you have business owners who find this difficult, introduce them to someone who can train them in how to do it or to a good bookkeeping company who can do this for them.
Habit 3 – Budgeting and review
Helping your franchisee set a budget is critical for them at the start of their business and also on-going. We talk about this in more detail in the first blog of this series.
A budget will enable them to plan ahead and also to measure themselves each month against the budget they originally set. As the franchisor, you could incorporate a budget review into any monthly or quarterly review meetings you have with individual franchisees.
Habit 4 – Chasing debts
If it is the type of franchise where customers are being invoiced and given time to pay, then there will be a certain amount of credit control to be done.
This can of course be minimised by getting customers to pay by direct debit and making it really easy to pay.
With those customers that aren’t paying on time, regular and consistent follow up and action is essential. Encouraging your franchisee to diary regular time each week to follow up and undertake credit control is essential to their cashflow remaining positive. This is a habit to start from day 1 because as the business grows, this will become even more important in their business.
Habit 5 – Shopping around for best prices without sacrificing quality
This of course applies in any business that will want to keep their expenditure to a minimum. We have all seen though sometimes that what can appear to be cheaper can give you problems later on. You don’t want to compromise the products of services being provided to your customers.
As a franchisor, you can help your franchisees by having preferred suppliers agreements in place with suppliers who can help all of your franchisees and who are prepared to give discounted rates to them.
You can also help your franchisees teaching them to do their research when considering new expenditure, getting recommendations and considering both price and quality.
Habit 6 – Reviewing your own pricing
If your businesses are operating in a changing market, it is important to keep up to date with new products, services and what customers are prepared to pay for these.
So helping your franchisees to review what they offer, how they offer it and pricing is really important for a business to survive and thrive.
Habit 7 – Using financial information for decision making
We said earlier about the importance of keeping up to date with the bookkeeping, at least monthly.
But it’s then what you do with it that really counts.
For example, if your franchisees are looking at how they grow, need to buy new equipment or hire new staff, the financial information they have is really important and should be considered when making these critical decisions in their business. We sometimes see business owners making really important decisions without this and it can sometimes lead to some real problems later on.
So, as a franchisor, we would suggest that you encourage your franchisees to be reviewing their financial information at least monthly and for this to be part of their regular development discussions with Head Office. If they are talking to you about decisions they are making in their business, ask them what impact these decisions will have on their profit & loss for the remainder of the year and, if they don’t know the answer, then you can see this is an area you need to support them more with.
Habit 8 – Putting money aside
It will depend on the set up for the franchisees’ business as to what is right for them but having a separate account to be accumulating the money needed for VAT bills, Corporation tax and also money for a rainy day (if something doesn’t go to plan in the business) is a great habit to start. It provides peace of mind and prevents problems with franchisees not having the money available when needed to meet HMRC payment requirements. So, as the franchisor, this is something you can keep reminding them about when you discuss financial matters with them.
Habit 9 – Asking for advice when you need it from the right people
Your franchisees are very fortunate to have Head Office and other franchisees to speak to and to get advice from which is great. They should also have a really good accountant who can advise them on their personal and business financial matters and also a good bookkeeper who can alleviate them from the need to spend time doing their bookkeeping when they could be spending more time growing their business.
So, they already have good people with the right kind of experience and with an interest in them doing well to draw upon. So reminding them that this is all available to them and to use it when they need it is really important and they don’t need to be isolated. Taking views from others before then making their own decision is a sensible way to manage their finances.
Habit 10 – Regular financial review meetings
I’ve left this point to last because it is probably the most critical. When business owners are too busy working in their business to really review how the business is doing financially, it can lead to poor decision making and potentially to going out of business. As the franchisor, you will also want to be aware if there are problems in the business and to address this early on. If you franchisees get demoralised due to financial problems, this can of course also affect the franchisee retention.
So, as the franchisor, do a financial review with your franchisees regularly. It may not be in person but could be done over the phone or by Skype. This structure will force them to have the routine of reviewing and discussing their finances and to take action before the next review meeting. Cover areas such as;
- Review of the profit & loss report and issues arising (comparing against what was budgeted)
- Cashflow position and any challenges
- Financial needs to grow/expand the business
- How to generate more income/profit in the business
- Any other areas specific to your franchise
In summary
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.
Part 1: The New Franchisee
Part 2: Educating Them on 10 Good Financial Habits
Part 3: Using an Effective Bookkeeping Software
Part 4: Types of Financial Support
Part 5: 7 Steps to Positive Cashflow
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 lynne@thebookkeepingdepartment.co.uk
Franchise Webinars
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.