Why visibility over franchisee profitability is a win-win

franchisee profitability software (1)
The right software can lead to strong financial management. (Source: Bigstock)

Franchisors looking to grow, expand overseas or sell their business need accurate financial reporting from across their network. However, getting visibility of financials for every franchisee can prove a hit-and-miss process, even when it is a requirement for franchise partners to provide P&Ls.

Paul Tee, head of sales at Integrated Workforce Solutions (iWS), understands the challenges facing CFOs.

“Franchisee P&Ls can be late and inaccurate, and that’s a real pain point. Every CFO needs control and visibility; without accurate figures how do you get a business loan? How do you sell your business? How can you determine the value of your business? If you have no exposure to accurate franchisee store data, you have no idea of your worth.

“Franchisor visibility over franchise partners’ profitability and knowing whether a franchisee has control over their business, is the key to strong financial management,” Tee says.

Understanding the demands of a franchise network

iWS has been working in the franchising sector and with leading QSR brands for 15 years, so it has experience servicing the unique demands of a franchise network.

The key is to provide financial reporting that delivers clear benefits for both parties; a system that streamlines the reporting process for the franchisor and adds another layer of insight at franchisee level.

“We make it so easy, we become an extension of a franchisee’s back office,” Tee explains. “They get assigned a bookkeeper who manages the finances and produces a P&L guaranteed by the 15th of the following month. There is full bank reconciliation, we capture all sales data from PoS and all labour costs from the rostering solution. Any supplier invoices we fully reconcile on accountancy software.”

The franchise partner has a weekly meeting with their bookkeeper so they can stay on top of the figures. A regular bookkeeper will notice any anomalies in a franchisee’s accounts and raise the issue with the franchisee.

“They can spot any spikes; they are effectively a second pair of eyes,” says Tee.

Accurate, timely and standardised reporting

The process ensures the accuracy of franchisee P&Ls which are produced in a standardised form, with listed expenses both correct and appropriate.

“We prepare the reports and send them to the franchisor. CFOs and operations managers love this because the reporting process is done for them. This is a huge time saver; all they need to do is act on the information,” says Tee.

“This is a powerful report that provides franchisors with an accurate snapshot of the overall business.”

iWS produces a report on an individual franchisee basis, providing a review and overview of each business, including cashflow forecasts and balance sheets. The data allows franchisors to use the current trend to predict how franchisees are likely to perform in the future.

The consolidated report can benchmark how all stores are performing against each other and against key KPIs.

“Franchisors can identify franchise partners with the most sales and those which are most profitable. It can give a green tick to those who are above budget and a red flag for misdemeanours,” says Tee.

“The report can filter information according to franchisee maturity, on a geographical basis, comparing corporate-owned stores, for instance.”

One fast food client was able to use the consolidated report to identify differences in COGs in an area where sales were approximately the same, to discover how one franchisee was cutting costs, and replicate the method across the geographical group.

“Good reporting gives you the ability to help turnaround underperforming franchisees,” says Tee.

Franchisor visibility over franchisee profitability helps both achieve their goals

“We’ve found this reporting brings together the franchisor and franchisee with the common goal of finding a solution for any red flags.

“Equally, if a franchisee wants a loan, or to expand into a second unit, it will be clear if they have the money to achieve this and easier to source a loan if they need to because they have accurate data.”

Quality metrics are crucial in business but it can be challenging to introduce new systems to well-established franchise partners, particularly those with multiple units. Franchise partners need to see the advantages of adopting a new system.

Tee believes many franchisees are over-reliant on their accountant for tasks that can be done at bookkeeper’s rates.

“iWS is often mandated into a franchisee’s contract for the bookkeeping service,” he points out.

“However in franchises with 50-plus stores it is hard to implement change. We work with a change management consultant to help stores make the move. A lot of well-established franchisees have a lot of sway. The decision has to be right for both parties,” he says.

Tee points to a massive appetite for data that can enable franchisors to guide franchisee growth.

Ideally, emerging franchisors adopt such a solution at an early stage, giving themselves a strategic advantage, to future-set the business to be ready for planned expansion.

“Whether you want to grow corporate stores or secure new franchise partners you need strong financial reporting. Using a franchise-experienced, well-reputed company to achieve this can make this an easy option,” says Tee.

To learn more about iWS software solutions the visit the website.