Managing franchises is a difficult, involved process. Franchisors feel the understandable need to focus on growth, and that can mean trouble with prioritizing finance or accounting strategies. Often, the first many hires a franchisor makes are marketing or sales professionals.
This preoccupation with growth can mean that franchisors get ahead of themselves and fail to consider how scaling without certain systems in place may cause them problems. Specifically, most franchisors discount the advantages that a well-built accounting and finance department offers. They shouldn’t, though: The services of accountants are essential to the success of a franchise and help franchisors generate revenues and operate efficiently, among other things.
Successful franchisors are skilled business people, but they are probably not accounting professionals. In this article, we will go into more detail about how franchisors can determine their accounting department needs, explain the advantages of a skilled accounting department, and offer advice to franchisors looking for accounting help.
First things first: Assess your accounting situation
The first step to meeting your accounting needs is to assess your current situation, so that you can create a game plan moving forward. This step can be difficult, however, because you may not know what to look for or what metrics are important. To simplify, most franchisors’ accounting situations fall into 1 of 2 categories:
- They are taking on far too many accounting responsibilities. Consider the case of a franchisor in Columbus, Ohio who was spending nearly 100 hours each month handling bookkeeping for his franchise, for example. Without professional accounting experience, tackling a significant workload like this by yourself is a mistake. If this situation describes you, consider hiring a bookkeeper and a virtual CFO — these professionals will not only reduce your workload but will definitely improve your accounting.
- They are neglecting all but the most basic accounting needs to focus on other work. This situation is understandable, especially since most franchisors aren’t accountants. Focusing on growing your business and driving sales is important, of course — but you shouldn’t discount the advantages of a skilled accounting department either. Again, outsourcing a virtual CFO or bookkeeper can be an eye-opener for franchisors in this situation. Even a single accounting professional offers your business significant benefits, including the peace of mind that your books are in order and your financial strategy sound.
Franchise accounting is complicated, so if an honest assessment of your situation doesn’t seem to fall into one of these categories, consider a consultation with a professional accountant. A good virtual CFO will have experience in judging the accounting needs of businesses, and they won’t mislead you or oversell their services.
The next step: What will hiring an accounting professional mean for your business?
So, you’ve assessed your needs, and are wondering whether building out your accounting department is the correct decision. Here is a quick guide to the benefits that hiring further accounting professionals offers your business:
- Expertise in financial strategy and planning. Franchisors are business people, but that doesn’t mean they are trained in financial strategy. Often, they are engrossed with the day-to-day operations of their franchises, or with running their own stores. Put simply, most franchisors put the cart before the horse when it comes to running their businesses — they are keyed in on how many new units they have opened recently and unsure about how much profit they will have made in the next 5 years.
A CFO or virtual CFO is an expert in creating and implementing a long-term financial strategy for a business. Among other things, a CFO will analyze and plan around financial touchstones like:
- Budgeting. Budgeting and forecasting is the life-blood of business strategy, but it doesn’t only mean making sure that you have enough money to open your doors tomorrow. A skilled CFO knows that a budget is a strategic opportunity, and will use your budget as a tool to help you meet your long-term goals.
- Reporting. Financial reports are complex documents that CFOs are trained to interpret. They are important watermarks of how your financial strategy is progressing, and a CFO will use them to ensure that your budget is being followed and your overall strategy implemented.
- Cash flow best practices. According to the Small Business Administration, “cash flow problems are the major reason why so many small businesses fail each year.” A CFO will guide both you and your franchisees in cash flow best practices, so that you aren’t left guessing if you will have enough cash on hand for a future investment, for instance, or to supply next month’s operations.
- Expertise in managing financial processes. When a franchisor begins to grow, they can often lose sight of the underlying processes that support their business and franchisees. A rock-solid set of financial processes is the foundation that the franchisor-franchisee relationship is built upon, and if those processes are weak, they can begin to break down under the stress of growth. Often, franchisors will focus on growth and not realize that their franchisees are reporting financials differently, or that they have no way to verify the financial situation of a certain franchise.
In the long-term, this kind of failure to plan will cause problems. A professional bookkeeper or CFO is trained in avoiding those problems by making sure that financial processes are well thought out and forward looking.
- Expertise is preparing your business for outside investment. Apart from creating a solid financial strategy and ensuring that the financial operations of all your franchises are in order, a professional CFO or bookkeeper will help prepare your business for outside investment. A CFO’s financial expertise will ensure that:
- Potential investors notice the care and planning you put into your financials. One major thing that investors look for in potential partners is a mindfulness of their financial situation. Investors won’t want to hear that you aren’t sure exactly how each of your franchisees is reporting data, for instance, or that you don’t review your cash flow statements each month. A CFO can show how you have carefully considered all of your financial reports, and will reassure investors that you are staying on top of your financials.
- Potential investors understand you have a long-term plan for how to use capital. Investors aren’t likely to present your business with capital unless they are sure you have a plan for how to use it. These kinds of financial plans are a CFO’s speciality, and consulting with a CFO can make certain that investors see you as a responsible partner.
- Potential investors know you’re not neglecting financial strategy. As a franchisor, it can be easy to get caught up in day-to-day business operations or absorbed in launching your newest marketing campaign. These things may attract investors, but when they are considering a partnership, those investors want to know that you have a long-term plan for growth. Apart from showing investors that you have considered how to use their capital, a CFO will create an overall financial strategy for growth that is based on detailed analysis of your financials — and which investors love to see in a potential partner.
- Knowing your finances helps you grow. Do you know what the expected ROI is for your franchisees? Have you looked at your franchises opportunity from a prospects lens? Have you looked at ways to make your operations more financial efficient?
For many franchisors, the answer is no to all of the above questions. Knowing the economics of your franchise system can help aid in the growth process and having more effective conversations with potential prospects. At many emerging brands, the CFO is more heavily involved in the growth and sales process because they are able to provide key insights to the sales team. They often are able to also help prospects develop their own financial projections so they can feel more comfortable about a potential investment.
Above all, a skilled accountant will provide you with peace of mind about your financial situation. Outsourcing the services of a virtual CFO and bookkeeper will ensure your finances are sound and your future success is planned for, so that you can focus on utilizing your skills as an entrepreneur.
Accounting services for small businesses
Now that you understand the advantages an accounting professional can offer your business, you may well be concerned with the cost of such a hire. This concern is understandable: a full-time CFO, for example, can mean the investment of a 6 figure salary. As a small business owner or a franchisor with less than 50 franchise units, you probably don’t have that kind of capital lying around. Moreover, you probably don’t have the need for a full time CFO, and might even struggle to find 40 hours of accounting work a week to justify your hire.
That doesn’t mean that you should discount the financial expertise a CFO or bookkeeper can bring to your business, though. Consider outsourcing the services of a virtual CFO and bookkeeper. A consultation of 10 hours a month with a virtual CFO, for instance, can revamp your financial strategy and get your books in order without breaking the bank. In short, it isn’t true that your business is too small or your accounting needs too insignificant to benefit from the skills of a bookkeeper or CFO.
How Krieger Analytics can help
Now that you have an idea of why building out your accounting department is an important investment, you may feel overwhelmed. As a small business owner or franchisor, you probably don’t have a large accounting team or an on-staff CFO, and the financial expertise needed to analyze financial statements and plan financial strategy can seem understandably daunting. It may seem difficult, also, to determine what size accounting department is best, or which accounting services your business situation requires.
Krieger Analytics can help. We specialize in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO consultations, and our background in entrepuernship and finance means we know what running a business entails. Our goal is to meet your accounting needs without burdening you with the costs of a full-time accounting staff. And, we understand your position as a franchisor, because we have experience running franchising businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO and former franchisor has for your business? Conversations are free, so don’t hesitate to reach out at [email protected], and let us explain how our services could be the right fit for you.