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Monitoring franchisees’ performance helps franchisors firm up their financials

Written by Glen Murphy on Thursday, 13 July 2017. Posted in Finance

Gaining an objective handle on how a franchise network as a whole is performing has become much easier in the age of digital accounting

Monitoring franchisees’ performance helps franchisors firm up their financials

As with any business, a franchise’s finances must be closely and carefully managed to ensure its continued success and survival. All stakeholders in a franchise should be aware of its financial situation and performance and have a drive to improve. By its nature, franchising is a business model that has been developed into a replicable system for delivering a product or service for a monetary return. It should therefore in theory be straightforward to measure and manage a network of franchisees, as they are all supposedly following the same business model.

However, while there are many cross-network similarities and benefits, every franchisor knows that each franchisee is different. It certainly isn’t a case of one-size-fits-all. A generally held ratio is 20:60:20, where the top 20% of franchisees are flying, 60% are doing okay and the bottom 20% are struggling. Not all franchisors agree their network falls into this split in terms of performance but it’s indisputable that some franchises are more profitable than others and sometimes underperformance happens for a variety of reasons.

Monitoring and maximising revenue from franchise operations is therefore a vital issue for franchisors. Financial data should be tracked and analysed on a regular basis to draw effective and insightful conclusions on performance and inform future development. SMART targets should be set based on data and current results. However, particularly in large networks, it can be complex and time-consuming to find, measure and evaluate all the necessary financial data needed. Efficient and consistent measuring and tracking of financial activity within your network is the key here. But what’s the best way to measure financial performance across a franchise network?

First and foremost, having all franchisees on a common accounting and bookkeeping system makes monitoring your network’s information a great deal easier. With a single network accountant managing your franchisee’s accounts, all the financial data is held in a consistent, standardised format and you can manage it together as a whole. Financial quirks of the business model can all be handled centrally and compliance can be more easily ensured for the whole network, giving both franchisee and franchisor peace of mind.

A network accountant is not only likely to save franchisees money but also provide a higher level of service and support to each individual franchisee. After all, each franchisee will have their own reasons for their current level of performance. An accountant will be able to use insights from the data to monitor the effect of franchisees’ current financial performance and see how best to respond to it. It could be the franchisor must provide targeted support or change and update a system currently in place. Manually looking at each franchisee in isolation to work out exactly how they are performing, what they need and how they can be supported can be an incredibly laborious and difficult logistical challenge for a franchisor to manage, especially in a timely manner. 

Performance tracking and dashboards are incredibly useful here. A franchise dashboard will combine all your and your franchisees’ data, then create one complete network-wide view. This gives you real-time management and financial information, all in one place. You can integrate your network-wide data across every franchisee and analysis of the network will reveal trends, gaps, strengths and weakness. A dashboard allows the franchisor to understand exactly what financial activity is going on where and when in their network. They can then monitor this and if necessary put measures in place or ensure the best use of the resources available to support and drive performance. The franchisor benefits from financial vision and clarity, while the franchisee benefits from targeted guidance and support at the right time to maximise performance. With some skilful and well-directed input from you, informed by the information in the dashboard, most franchisees can be fired up and re-energised to improve their performance.

The government’s current plans to make tax digital will mean that digital accounting will soon become a necessary requirement for all businesses. Some franchisees might already be managing their accounts online; others might still use spreadsheets or bookkeeping manually. It’s tricky to compare results like-for-like if they are in different formats. Consistency is key for effective comparison and analysis. If your business is already using cloud accounting software such as Quickbooks or Xero, you’re likely to be sitting on a goldmine of data already. You can use this data to create graphical representations, produce reports and view the bigger picture, with everything in context. The results of viewing and acting on the data in this way are happier, better-performing franchisees who are making more money. The benefits are targeted support, improved performance and simple efficiency – the keys to financial success in business.

In summary, the main tools for measuring financial performance across a franchise network are, without doubt, a consistent accounting system and a network accountant. Once these are in place, the information is all there at your fingertips. With the plethora of reporting options, you’ll find what works best for you in tracking your franchise’s financial data and can use this to maximise performance and monitor financial information. 

About the Author

Glen Murphy

After honing his banking knowledge and client management skills at NatWest for over six years, Murphy joined accountancy firm Dennis & Turnbull in 2016. In his role as a client relationship manager, he advises businesses owners and franchises on their financial health.

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