As a banker the only real way you can assess how a business is performing is by being provided with regular, up-to-date and meaningful management information, reports Dave Williams, director of franchising at RBS.
However, many businesses struggle to provide enough detail to enable a thorough assessment. One can understand to some extent why an independent business, with often limited resources, may not have this information, but franchises should be in a much stronger position being cloned businesses, with benchmarking against the rest of the network assumed as part and parcel of the package offered by the franchisor.
The power to insist on the provision of financial information is there if the franchise agreement is vigorous enough, but in a lot of cases the requirement is only to provide annual accounts, rather than monthly or quarterly figures.
Of course, there are franchisors that have robust systems which enable them and the banks to assess the performance of their franchisees thoroughly.
However, many more will focus on turnover and, whilst important, the lines in the accounts below this are far more significant. There is a well worn, but very true phrase – turnover is vanity, profit is sanity, but cash is king.
In an ideal world all franchisors would have the same financial management information systems for each of their franchisees.
Why have different systems if they are, in effect, the same businesses selling the same things? This would then provide everyone involved with an uncomplicated method of analysing trends; comparisons with other franchisees; what products are selling (or not); how the margins differ between franchisees; who is spending what on marketing and what effect is it having, etc.
We are not, of course, in an ideal world but there is no reason why all new franchisors and existing franchisors on renewal could not have the correct clauses for the provision of financial information in their agreements.
There are BFA affiliates who offer such services and franchisors could look to incorporate them in the package they offer with a commensurate cost included.
Even with such robust information being provided, there may be few people in the franchisor’s organisation who understand a profit and loss account, cash flow statement, and balance sheets. So how does a franchisor use this information to benefit the franchisee and its own business?
My belief is that these aspects should be an integral part of every franchisor’s training strategy not only for its franchisees but also its own finance staff.
There are also BFA affiliates offering financial training, and using the knowledge gained from these courses will enable franchise executives to identify any issues and positively motivate franchisees to make them more successful and identify where more support may be required.