In November 2019, Dan had finally had it. He had franchised a fitness concept that had never taken root. He was franchisee #3 within the system. It was a small system, which is what Dan wanted. What it lacked in size, he was convinced it would make up in individual support.
As I sat having coffee with Dan, he reflected on what had gone wrong. He took ownership of the failure and pointed out many mistakes that he made along the way. However, he pointed out the lack of support he had gotten from the franchisor. There was never a serious discussion about a marketing plan and there was no coaching around his finances.
The vast majority of new business owners enter their new venture lacking any real financial education or background. While many are somewhat familiar with a balance sheet or income statement, the second you start to talk about KPIs, business models, and data analysis, their eyes cross. It’s not that these are not smart and intelligent people. They are great with operations and sales. But finance is not a topic that is native to most people, and therefore they struggle.
If we take a deep dive into Dan’s problems, you’ll see they are not unique to just him….
- Throughout his 3 ½ years of existence, he experienced significant cash flow challenges. In the WePay SMB & Money Survey, 41% of business owners said they had the same problems. Further, a survey from SCORE found that 82% of owners confessed they had poor cash management skills.
- Dan commented that he had never felt like he had gotten his monthly subscription pricing right. The franchisor left pricing up to him and he was responsible for surveying the market to determine his price. According to that same SCORE report, 77% of business owners that failed said they believed not setting pricing correctly was a significant issue.
- Finally, Dan mentioned that he would come to believe that the franchisor was just not qualified to help him on specific financial issues such as budgeting, setting prices, and helping him track indicators that were important to his business. Seventy percent of failed business owners said they had problems with not recognizing what they didn’t do well and seeking help for those issues.
You could argue that one reason people franchise is so that they don’t have these issues. However, I have had conversations with multiple franchisors this year who provide little coaching, whether financial or otherwise, to their franchisees. In my opinion, many of these concepts were rushed into franchising based on the advice of a consultant. As a result, they never gave much thought to how to build out an adequate support structure. However, if you find yourself in the same boat, it’s not too late to put an effective system into place.
Support looks different for all systems. There is not a one size fits all approach. Much of what an individual franchisor offers in support has to do with the specific business model and the franchisor’s background. If the franchisor has a marketing background, you often see support systems built around marketing. Much like Dan should have, this is where franchise concepts need to learn to utilize resources and experts in areas they may be unfamiliar with.
As a factional CFO who works with multiple small businesses and franchise concepts, I have a strong opinion on what financial support and coaching should look like. Below is a quick high-level summary of how franchise brands should be financially coaching their franchisees.
- It Starts with Budgeting – If there is one process that a franchisor should insist on and coach their franchisees through, it is budgeting. Many people miss the point of budgeting altogether and concentrate too much on what the numbers are. Instead, a good budget process focuses on the assumptions and planning behind the numbers. The process should force the participants to make decisions on what they will do during the next year and how they will accomplish that.
- You Need to Keep Track with Reporting – While the budget process is great, it means nothing unless there is accountability to the budget and the process that was followed. If marketing costs are significantly below where projected, why? Why was there a diversion from the original strategy?
- Move Past the Basics to KPIs – The financial statements are often the result of specific drivers of the business. Most businesses have 4-8 indicators that drive their success. These should be reviewed with a franchisee monthly and benchmarked against other units in the system. An additional bonus is this will help drive operational and marketing coaching.
- Cash Management Best Practices – Most small business owners manage their businesses through their bank accounts. When money is plentiful, they spend. When money is lacking, they panic. Franchisors need to help franchisees develop systems around best practices, so they can better manage their cash flow.
The last key element to a financial coaching program is it must be consistent. Franchise brand entrepreneurs are busy, so they are often skipping from one thing to the next. I get it because I have been there. However, by hiring a fractional CFO to help manage this process, they can ensure there is a consistent process.
Imagine how powerful this support program would be. I can assure you, your competitors that are franchising similar concepts are not doing this. I know because none of the franchise concepts I have talked to this year are doing any of this. I take that back…the one brand I have spoken to this year that is doing this has over 150 units sold since 2013 and projects to sell 25 more this year. They are a high-level franchisor that gets it. If your looking for a differentiator, here one is.
Krieger Analytics works with franchisors to help them with their profits and grow through accounting and finance. 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 a good match for you. Contact us now for a call to learn more and have a chat about your business.
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