While it is hard to get an exact count on how many franchise brands are in the United States, the number is somewhere between 3,500 and 4,000. While many of the periodicals dedicated to covering franchising devote most of their efforts to brands that are in the uber-growth phase or have well over 150 units, those brands are actually in the minority.
Research from FRANdata showed that approximately 82% of brands have less than 100 units. In fact, over 50% of franchise concepts have less than 25 units. Every year, another 250-350 brands elect to begin franchising. On average, there are only 15,000 new franchisees that enter the market each year. If everything was divided up equally, that would be approximately 4-5 franchisees per concept. However, we all know that things aren’t equal and as such, franchise concepts are left with stiff competition to fight it out for new franchisees.
A recent article in Franchise Today zeroed in on the fitness industry. Five of their forty fastest growing brands are fitness concepts. If you have the time and count up the number of fitness concepts on the Entrepreneur’s Franchise 500 list, approximately 10%. The site lists another 150 concepts that are fitness related. How does one franchise concept stick out from another?
Sticking out
While many franchise concepts will tout points they believe are differentiators the hard truth is that to a franchisee, these items don’t really stick out. All brands tout great customer service or unique recipes. What prospective franchisees are looking for along with a successful track record are things that are going to help them succeed and reap a return on their investment. At the end of the day, prospective franchisees want to know they will be able to make a good living or investment from their business.
Since so many of their questions often boil down to money and financial statements, it is somewhat baffling why more systems don’t involve a Chief Financial Officer more in their business. While most will say they can’t afford a full-time person for this role, I would argue most don’t need one. In today’s market, these professionals are available on a part-time basis to help your business. A good CFO won’t cost you a dime because they will be increasing royalties and franchise sales.
Below are 5 ideas of how a CFO can help a franchise concept create real differentiators to grow their system.
The Franchise Sales Process
Too many franchise salespeople stumble their way through the financial presentation of the business to potential franchisees. They are not able to articulate the revenue streams, major factors that determine expenses, and opportunities available to expand the business.
Most franchisees have no idea how to put together a projected income statement or financial model around the opportunity. Having a CFO that can help guide franchisees through this process not only helps potential franchisees make a decision, but it also sets up a realistic expectation of how the business should perform as they open their new venture.
Setting Up Financial Best Practices
The best franchise concepts in the world report back to their franchisees on certain benchmarks. They will tell their franchisees, for instance, the average number of transactions per day, sales per square foot, labor as a percentage of revenue, and many other statistics the help them run their business (something else a CFO can help you do).
However, in order to do that, a franchisor must have a system set up to collect this data. This means they must have thought out the technology to be used in the business, how that technology will report, what type of chart of accounts will be used, and how often reporting will be done.
Financial Coaching
One of the biggest areas any business owner struggles with is on the finances and numbers. Most business owners have no idea on how to create a marketing budget, forecast cash flow, set pricing, or most other things that involve numbers. Imagine the selling point a franchise concept would have if they offered some sort of financial coaching program. Not only would it benefit their franchisees, but it would create a more stable franchise system and royalty stream.
Smarter Decisions Using Data
Businesses are getting smart today by using data to make decisions. Gone are the days of trying to figure out where to market a business using nothing but general observations of your customers. Today, smart businesses know where their customers come from, how often they come in, and what their typical demographic is. Businesses today are using data to figure out how “build a better customer”.
A Chief Financial Officer can help a franchise concept both set up the system to collect this data and interpret this data to help make better business decisions. Not only that, but these systems and processes can help franchisees determine how to market, set prices and hours, and control expenses. Imagine how powerful that is to a prospective franchisee.
Help a Concept Make Better Decisions to Increase ROI for Franchisees
Like it or not, a prospective franchisees decision often comes down to the finances. Yes, they may love a concept and believe in its mission, but if the numbers don’t match a prospect’s goals, more often then not they don’t move forward.
As a result, it is critical for a franchise brand to have a financial mind on the front end of figuring out how to duplicate a concept. Having your CFO help value engineering the build-out, flush through the supplies and equipment list, and taking all expenses into account in the financial model to help franchisees realize the strongest ROI possible is vital.
We could have gone much more in-depth on the five items above. However, the purpose was to show how important it is for a franchise concept to have a financial professional involved in the process. In an environment that is only getting more competitive, the franchise concepts that can offer a more sound model, resources, and support to franchisees have the best chance of succeeding.
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.
About Krieger Analytics
My name is Matt Krieger, and I am the founder of Krieger Analytics, an accounting and advisory partner for small businesses and franchisors. Our goal is to completely outsource your accounting department from bookkeeping and taxes to CFO advisory services. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.
As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO or bookkeeper. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), we are also involved in much more. We partner with clients by coaching, giving them clarity into their business, and creating growth strategies. Conversations are free, so don’t hesitate to reach out to me at [email protected]