This blog is the fifth of 5 blogs about how as a franchisor you can support your franchisees to manage their business finances.
In earlier blogs, we have talked about the importance of good financial habits and systems being utilised by each of the franchisees and how Head Office can help them to manage their financial matters in their business well which should lead to better profits and performance.
The focus of this blog is about cashflow and how franchise HQs can educate and support franchisees to manage their cashflow.
7 steps to positive cashflow
As a business owner, whether we have enough money in the bank to pay our staff and suppliers and to invest in the growth of our business can be a big worry for us. We all know that poor cashflow can kill what seemed on the surface to be a great business and how important it is to manage this well.
So here is a ‘common sense’ checklist of some of things that our franchisees can be doing in their business to continually making sure that they are maximising cashflow.
✓Review customer and supplier payment terms
If we pay our suppliers much earlier than you we are receiving money from your customers then this will of course impact on cashflow. So making sure customers pay as quickly as possible and getting payment terms for suppliers which are as long as possible makes obvious sense.
So as a franchise, you may want to review the payment terms which your franchisees apply for customers in their businesses. It may be as simple as moving from 30 days to 14 days payment terms. There may be contracts in place with particular customers which are longer than 30 days due to the nature of the business but think about how for future contracts or on renewing these contracts the number of payment days for invoices could be reduced.
If as a franchise you have relationships with suppliers that supply your franchisees, do your best to negotiate the very best payment terms for them. Also, train your franchisees not to being paying invoices as soon as they come in as they are very likely to be paying money out of the business much more quickly than it is coming in. Train them instead to be disciplined and to do suppliers payments just once a month, or if the payment terms with some suppliers can be extended, then pay to these dates.
✓Taking payments up front
In industries where costs are incurred up front e.g. for materials or to pay staff, it is sensible to take part payment for the work to be completed up front. We see this a lot with trades businesses and creative and marketing businesses that we work with for example. This way then the money is there and ready to cover the initial costs and then the final invoices are issued when the project is completed.
This way of operating isn’t limited to particular industries and this is something you may wish to consider for your franchise. Is it time to review this within the franchise and to consult with franchisees about making a change?
✓Making it easy for customers to pay straightaway
These are some simple things which your franchisees can do to get customers to pay straightaway. Training your franchisees to do this from day 1 in their business is really important. So things they can do include;
- Invoicing customers straightaway – not waiting until the end of the month to do invoicing
- Putting bank details on your invoices so payment can be made by bank transfer (surprising how many businesses don’t) or a link to pay by debit or credit card
- Discouraging cheques as this leads to delays
- Taking card payments. If dealing with domestic customers for example, take payment from the customer before leaving the house and this avoids any need to chase them.
- For regular customers, make signing up to direct debit part of their terms and conditions. They won’t need to chase them and can simply collect the money on the due date.
✓Review the pricing
How does it work in your franchise, is there a pricing policy which applies consistently across all the franchises or can franchisees determine their own pricing?
In the franchise we used to be within, we could set our own prices. One thing we noticed was that there were some of franchisees who, because of lack of confidence, probably didn’t charge enough and as a consequence didn’t find themselves as profitable or their cashflow as positive. So, it is really important to make sure that your franchisees are charging appropriate prices for their products or services in their area.
Reviewing pricing can of course mean increasing some of the pricing but it doesn’t always mean this. It can mean packaging products and services in different ways. It could be starting to charge monthly retainers to aid cashflow or introducing prices for new services.
✓Regular and structured credit control process in place
For those businesses that are not solely cash based, time spent on a weekly basis by your franchisees chasing unpaid invoices is an excellent use of time. If franchisees don’t have the time then they can always use someone from within their staff team or an external bookkeeper or credit controller to do this for them.
Remaining professional, friendly and consistent in approach is the key to success.
If using a good bookkeeping software, this can be used to email reminders and statements to customers and doing this, combined with putting in a polite and professional call to the customer to resolve any problems or issues, will show customers that you are organised and diligent and committed to collecting payment.
So getting your franchisees trained in how to do this is a really important part of running their business.
✓Cashflow forecasting
This is something which you can train and help franchisees to do themselves or they may want to get the help of a bookkeeper or accountant. It can be done on a simple spreadsheet or on more sophisticated software.
The main thing is for franchisees is to be making sensible projections so that they can plan certain expenditure to take place at the best times. This may be decisions about when they can afford to recruit new staff, make changes to their premises or buy new equipment. If they are a seasonal business, it will enable them to plot out the seasonal variations impacting their income and expenditure and anticipate potential cashflow issues. The cashflow forecasting process basically enables them to plan ahead and to minimise cashflow issues.
✓Finance options: Overdraft, loans, invoice factoring, leasing
There are of course a range of financial options for consideration by franchisees if they are needed.
Often franchises will have in place arrangements with banks or other financial services providers that they can refer their franchisees towards these if they need help with any of these services.
All of these types of lending have their own merits, depending on the situation and type of business. They of course all come with a price tag – for example;
- Overdraft. This gives the ability to go overdrawn up to a certain limit which can help with dips in cashflow. Application can be made to the bank for an overdraft or an extension.
- Leasing. Rather than make large purchases on equipment or vehicles, franchisees could lease instead to help cashflow.
- Loans. Does the franchisee need a start up loan or a short term loan to get them through a particular period of time?
- Factoring. With factoring the factoring company will give the franchisee a proportion of the invoice total and then collect the outstanding amount of the invoice from the customer.
- Invoice discounting. This is almost the same as factoring except control is retained over the debt collection and credit control. Invoice discounting is usually suitable for larger companies with an established credit control function.
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 the last 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.