Opening a franchise is a significant decision and one that involves a certain amount of risk. The legal relationship between franchisors and the franchisees is also complex, and involves many difficult legal and financial concepts. Often, prospective franchise buyers are overwhelmed by the recruitment process or turned off by financial concepts that can seem like barriers to success.
To that end, franchisors play an important role in preparing franchisees for business ownership. There are legal limitations on the kind of information franchisors can discuss with their franchisee prospect, though. It is illegal, for instance, for a franchisor to tell a prospect how much money they can earn, or to bring up financial data that isn’t included in item 19 of their franchise disclosure agreement. Because of these limitations, educating and preparing franchisee recruits for successful ownership can be difficult.
Enter the modern franchise CFO. A CFO can help bridge the gap between franchisor and franchisee by preparing franchise prospects to create accurate and useful financial data for themselves. The modern franchise CFO plays the roles of educator and coach for franchisees, and ensures that they have access to the financial tools they need to make decisions.
In this article, we will explain the role of a CFO in the franchise recruitment process, and then discuss in more detail the specific ways that a CFO or virtual CFO can help franchisors prepare franchisee candidates to be successful owners.
The CFO as salesman
Whether or not we use the term “salesman” or “recruiter” to describe the role a CFO plays in helping franchisors develop and secure franchise prospects, the intent is the same: A CFO is uniquely positioned to analyze and explain financial data to prospects, and to prepare those prospects for success through coaching. In these ways, a CFO can be seen as a franchise sales person, and he or she is involved in every step of the franchisee recruitment process.
First, a CFO will help select and vet promising recruits. Because CFOs are financial experts, they are skilled at evaluating the particular strengths of potential buyers, and they can help a franchisor single out promising candidates. A CFO will also have a deep understanding of a franchisor’s business model, and of what kinds of candidates will best fit that model.
Next, a CFO “sells” the potential franchise buyer on owning a franchise by offering tools that give them the confidence to succeed. Franchise ownership is a big step, and a major roadblock for potential franchise buyers is how complicated the ownership process can seem. A skilled CFO will explain the process to a candidate in simple terms, and instill confidence by presenting a game plan for the buyer’s success.
How a CFO can help bridge the gap between franchisor and franchisee
How, specifically, can CFOs help franchisors prepare successful franchisees for ownership? Put simply, CFOs help franchisors build fruitful relationships with franchise buyers by financially educating and coaching those buyers. Among other things, a skilled CFO will help a franchisor:
Explain the Franchise Disclosure Document to franchise buyers. By law, all prospective franchise buyers must be given a franchise disclosure document, or FDD. This document includes essential information that franchisees must consider before making the significant investment of opening a franchise.
Most franchisors are not finance professionals, though, and an FDD is a dense legal document. An accounting professional, like a CFO, can help interpret an FDD and translate it into language that franchise buyers can understand so that they are best prepared for the challenges of ownership — and so that they understand precisely how the business relationship between franchisor and franchisee will be carried out.
Explain the franchise’s business model to potential owners. Because of the restrictions on what information franchisors can discuss with potential franchisees, it can be difficult to prepare franchise buyers for success. A CFO can act as a kind of financial educator for franchisees, explaining how the franchise’s business model works and what skills the franchisee needs to master in order to be successful. A CFO will help explain to candidates:
– What key performance indicators (KPIs) are, and how to best utilize them to develop data-driven strategies for growth.
– How basic financial reporting works, and how to review reports for insights about their franchise’s financial health.
– How to begin allocating cash for advertising, break into new markets, or drive revenue.
– How the relationship between franchisor and franchisee is critical to a franchise owner’s success, and how, specifically, that relationship works.
Prepare a franchise buyer to be financially independent. Neither franchisors or franchisee are financial professionals, and both should consider outsourcing the help of a virtual CFO when making complex financial decisions. Nevertheless, during the initial franchise buying process, a CFO can help a franchisee develop some baseline financial competence, by explaining how to create pro forma financial reports, or educating them about very basic financial concepts. In this role as coach, a CFO will help a franchise prospect develop the confidence they need to break into the world of franchising.
In summary, a CFO will help a potential franchisee become financially literate. In this way, a consultation with a CFO is a crucial part of the new franchisee recruitment process, and helps ensure that the franchisor/franchisee relationship begins on good footing.
How Krieger Analytics can help
So, now that you know how a CFO would benefit your business as a franchisor, you might be wondering if you have the means to hire one. And rightfully so: A full-time accounting executive can demand a 6 figure salary, and most small businesses don’t have 40 hours of high-level accounting work to be done every week. Consider, instead, outsourcing the services of a virtual CFO. Even 10 hours worth of consultation with a virtual CFO in a month can mean tangible benefits for your business’ financial health.
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO and controller consultations, and our background in entrapuernship and finance means we know what running a business entails. Our goal is to meet your small business accounting needs without burdening you with the costs of a full-time accounting staff. And, we understand your position as a small business owner, because we have experience running 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.