GETTING FRANCHISEES BACK TO BUSINESS BASICS – Ask simple questions

By Nicola Maré

There is no denying that in times of economic downturn both franchisees and franchisors face a difficult challenge. In your search for answers, start by asking simple questions.

Franchisees who are bogged down by the onerous operational responsibilities of managing their businesses, tend to overlook the basics. When business matters get the better of franchisees, it is the responsibility of the franchisor to get them back on track. Search for the simple answer, by asking the simple question, such as....

1. Are you spending sufficient time in the business? 

Your business is not your business, until you make it your business. Too often franchisees leave their businesses in the hands of managers who do not have the same vested interest in pleasing customers and making profit. Businesses managed by remote control are most often the first to land in hot water.

2. Do you actually know how much money you are making? 

Many franchisees contract a bookkeeper to prepare monthly management accounts for the business, but then shy away from the numbers as they are unable to interpret what the figures are telling them. Encourage franchisees to invest in a financial management course that will let the rands and cents make sense!

3. Do you have regular meetings with your staff? 

Regular interactions with staff make them feel that the owners value their opinion. Often, suggestions contributed by staff can result in improved efficiencies and profitability.

4. Have you prepared a promotional plan to market your business in your local area? 

A local area marketing programme executed by the franchisee in his/her local community can be far more effective than a national marketing campaign. 

5. Have you made a concerted effort to reduce your debt levels? 

In the current economic climate it is advisable for franchisees to make a concerted effort to reduce their debt levels and invest in their business by:

-          training staff on topics such as customer service, life skills and personal financial planning,

-          implementing local area marketing campaigns,

-          conducting basic repairs and maintenance.

6. Is your lease nearing expiration? 

If so, encourage or assist franchisees to negotiate a reduced rental with the landlord.

7. Are you in a position to claim back your skills development levies? 

Help franchisees obtain the necessary advice and send staff on accredited training, for which they can claim back.

8. Do you do regular stock stakes? 

If franchisees are not monitoring gross profit levels and stock is disappearing out of the stock room, it will severely impact the profitability of the business. Accountants call it ‘shrinkage’, but unless the stock is evaporating, the more relevant term would be theft, a situation that requires your serious and immediate attention.

In tight economic times, it is more important than ever that franchisees focus on the financial health of their business. Through thorough business analysis franchisors should assist small business owners to improve their profitability and cash flow management.

Franchisors need to re-assess whether they are still operating with a strategy in mind, or whether they are just reactively going from day to day, taking what comes. Kept busy answering emails, doing admin, running around from store to store and sometimes even serving customers. If you don’t have a strategy, you simply aren’t competitive enough!

Here are some tips to get franchisees financially focused:

• Talk finance all the time
• Demand compliance with financial statements. This should be non-negotiable.
• Identify a few financial benchmarks and focus your attention on these.
• Have a GP percentage barometer that is updated daily and sent to all franchisees.
• Conduct monthly audits of financial, operational and marketing performance.
• Compile short term financial goals. Keep it simple and focused.
• Ensure that daily controls such as daily turnover budget vs actual, cash flow projections, stock takes, shrinkage checks and creditor lists are adhered to.

Franchisors need to be sure that their business model remains profitable and in order to do so, it is imperative that all the role-players understand the model. The following controls/checks should be implemented/monitored:

• Be aware of increasing GP percentages. Buy right, sell right.
• Procurement arrangements must benefit the franchisee.
• Assist franchisees to identify profit drivers. In so doing overstocking on low profit lines, incorrect pricing and excessive provision of customer credit can be avoided. 
• Take cognisance of inflation, escalations and cost pressures.
• Encourage franchisees to gain an intimate understanding of the numbers and costs in their business. A better understanding of the cash flow cycle could help maximize their net profit.
• Ensure that franchisees are budgeting and forecasting correctly. This will ensure their effective control over their business.

Franchisors must be pro-active and have their fingers on the pulse. This will enable them to act immediately should any of the following warning signs become evident:

•       The franchisee is tardy in submitting figures or royalty payments.

•       Suppliers complain about the non-payment of accounts.

•       Any other signs of cash flow difficulties.

•       The franchisee is not working on site or is buying too many luxury items.

•       The franchisee does not meet the desired operational standards, failing inspections and mystery shopper “tests”.

•       A weakening in the daily controls and sub standard product quality.

•       High staff turnover or other staff issues.

•       Consistent negative behaviour from the franchisee, indicating a change in motivation.

•       Negative reports received via “franchisee grapevine” or mounting customer service problems.

•       No ‘year-on-year’ growth is recorded for the franchise or the franchisee’s benchmarks and ratios are below the norm.

•       There are consistent signs of low or out of stock levels.

•       The franchisee deviates from “Intellectual Property”.

Regular and disciplined controls are central to any business owner’s ability to build up profit and eventually, capital. While it is the franchisor’s responsibility to teach the franchisees how to make money, it also requires commitment from the franchisee and an understanding that all decisions, in one form or another, will impact the business financially.

“If you are in top shape at the bottom of the economy you’ve got the edge” (Bill Gibson)

 

Nicola Maré

Senior Consultant

Franchize Directions

011 803 0665 / www.franchize.co.za