What can you do to help your franchisees avoid financial distress?

There can be many reasons for franchisee failure and some are beyond the capabilities, or the responsibilities, of a franchisor to affect. But when it comes to financial management, there is a role for the franchisor.

Most franchise networks comprise franchisees with a variety of backgrounds and diverse skills. As a franchisor, the training you offer should help fill in the gaps between the existing skill set and the requirements for the role of successful franchisee.

There are three key areas which feed into a successful business:

  1. Marketing
  2. Operations
  3. Financial administration

Marketing skills are required for both local area marketing and selling.

Operations management of the business has three elements: purchasing, staff and productivity, and business management skills

Financials focus on cash flow, financial information, finance and personal matters.

4 common financial mistakes

This is as much about understanding the figures and their impact on the business as actually managing the numbers.

Peter Knight from SmartFranchise explains, “The majority of business owners run their business by bank statements. They have no idea of a rolling forecast.”So what are the common financial management mistakes franchisees make?

According to SmartFranchise, tax planning is a big one. There is often no plan at all.

Then there’s the impact on cash of superannuation payments. Add in BAS surprises.

And let’s not forget franchise refurbishment costs.

Advice and support for franchisees

Are you confident your franchisees have a grasp on these financial elements? While these issues are obvious to an accountant they may not be on the franchisees’ radar – and they need to be.

The recent Franchise Leaders and Accountants Forum run by SmartFranchise and the Franchise Accountants Network highlighted two points on this topic:

  • recognising the franchisee may not have considered all the elements in the financial management of a business
  • the need for communication about financial issues as a fundamental pillar of franchisor support and a reality of today’s franchising relationship

What is your strategy for ensuring franchise buyers are aware of these impacts on business, and can approach the money management of their franchise with confidence?