Success for any franchisor can be measured by their number of healthy franchisees. The statistics bear out that franchises fail about as often as a regular business. This should be somewhat surprising because many franchise concepts are modeled after an existing business that has experienced a certain level of success.
Many franchise systems have failure rates that would shock you. Lucky for consumers, the SBA publishes default rates for franchise concepts under its’ loan programs. If you look through the list, you will spot at least a few concepts that you aware of. For instance, I am a big fan of Dickey’s Barbeque…however, I was somewhat surprised to see that out of the 52 loans that have been issued, the SBA has had to charge off 28 of them. However, this is nowhere close to the top of the list. A pizzeria named Noble Roman Pizza had 26 SBA 7a loans issued between 2000-2018 of which a whopping 24 of them have been charged off.
Why does one pizzeria franchise fail where others prosper? You see this throughout all industries where there are leaders and laggards (and failures) in every space.
There are many reasons that a franchise concept just doesn’t translate into success for anyone other than the original founder. This industry is ripe with consultants giving just terrible advice and at least some of the blame can be partially laid at their feet. However, many of the other reasons for failure could have been headed off early in the process had the franchisor taken steps to install a part-time outsourced CFO to help refine the model, look at costs, and help with franchise support.
Support is somewhat tough for a smaller franchisor to design. They have limited resources and often have no experience in providing support. While using an outsourced CFO who is experienced with franchising won’t solve all these issues, it will help design a few important elements of a support system.
Support is important in a franchise system. Franchisors often are working with people that have little relevant experience in their industry or running a business. People turn to the franchise industry when they lack the experience, skills, and confidence to open a business on their own. Many of these people have dreamed of opening up a business and find comfort in the fact they will have a franchisor partner to help them along the way. Many of these people are talented and can develop the skills needed to be successful but need help along the way. This is where franchise support comes into play.
Below are three areas of franchise support in which an outsourced CFO can help your franchisors be more successful.
- A Financial Coaching Process
According to a survey from Clutch, 61% of small businesses didn’t create a budget in 2018. If a business had less than 10 employees, the number rises to 74%. This shouldn’t be a surprise. Many business owners are too much in the day to day weeds to stop and do strategic planning. Many owners also don’t have the skills needed to create a budget on their own.
Having a CFO develop a coaching process to help your franchisees create budgets, review financial statements, and do strategic planning on a yearly basis will make their businesses stronger. Just the process of budgeting helps owners determine what is important to their business and plan out their next 12 months.
- Develop Analytics and Dashboards
One problem with most business owners when they are left to their own is they get lost in their numbers. Eventually, they just stop looking at them. I get it….you can get lost in all of the financial reports that Quickbooks or any other accounting software can produce. If a franchisee is not financially inclined, the easiest thing to do is often tune our their reports and just watch their bank account.
The problem with that process is it doesn’t give any reasons why the business is performing a certain way or what the future holds.
I am a true believer that every business should have 4-8 key performance indicators that they use to help run their business off of. If you run a kids’ entertainment center, those might be the number of visits over the trialing 14 days, parties scheduled in the next 3 weeks, customer service score, and average visits per customer. Think of how powerful just those 4 metrics would be.
An outsourced CFO can help you not only determine what these indicators should be but also help your franchisee’s set up systems to track them.
- Using Data to Market
Despite many of the provisions written into the franchise agreement, getting a franchisee to advertise can be like pulling nails. In many cases, if a franchisee is marketing and advertising, they are doing so blind without much rhyme or reason for what they are doing.
Many franchisees read an article on Facebook, Google AdWords, or some other marketing phenomenon and let that drive their strategy…at least until they read their next article.
I am not sure if there can be an area a franchisee wastes more money than in marketing and advertising. They can pour thousands of dollars into marketing without any real knowledge of whether it is working.
An outsourced CFO can help franchisees determine who their customer is, where their customer is at, and whether their efforts are reaching them. I am a firm believer that any marketing should be done with a return on investment in mind. However, most businesses today don’t think about their ROI much less have methods in place to track it.
The numbers part of any business can be the most mystifying and perplexing for business owners. When putting together a support system for franchisees, a best practice would be to put together some systems, coaching, and assistance around the finances of the business. At the same time, many smaller franchisors don’t have the resources to commit to a full-time CFO. These situations are perfect for a part-time or outsourced CFO that has experience in franchising that can scale their services for the businesses’ needs.
Krieger Analytics works with franchisors to help them with their profits and grow through accounting, finance, and bookkeeping. I am a great partner to work with for franchisors because, like them, I am a franchisor. I am not the perfect match for all franchisors so I have honest conversations upfront to see if I am are a good match for you. Contact us now for a call to learn more about us and have a conversation about your business.