Franchising key in economic uncertainty

By Andrew Quinn | 06 Jul 2020 View comments

A franchised organisation is an economy, just like any other. A complex, distributed network of production, distribution, trade, and consumption. As such, franchised groups are sensitive to anything that disrupts these economic building blocks.

You know this, and you also know that the last 18 months has been a time of extraordinary economic disruption. Drought, fires, floods and now COVID-19 have contributed more economic uncertainty across more business sectors than even the global financial crisis a decade ago. That, too, was devastating, but at least it was predictable.

Unlike other distributed economies, however, franchises are uniquely placed to combat these kinds of economic uncertainty.

Franchising key in economic uncertainty

Franchised groups are a closed loop. Where the global economy relies on various global trade organisations and international cooperation to respond to crises, and where countries rely on local and federal governmental interventions, franchises need only rely on themselves.

To meet the demands of their consumers with the supply available to the organisation. This should make them more nimble and successful, but often, it does not.

The reason for this failure is often very simple. Franchised organisations, distributed as they are, are by their nature complex. They are a step removed from many kinds of business enterprise in this respect.

As such, franchisors tend to lose sight of the single most important key to combating economic uncertainty: the balance sheet. Accounting becomes a tool to address the complexity of managing a distributed system, and ceases to be the crucial source of information needed to manage, to forecast, and to grow.

In times of uncertainty, therefore, franchised groups are typically left vulnerable.

To reclaim the balance sheet, there is one critical change franchisors must make. They must establish, and monitor, Key Performance Indicators (KPIs). KPIs, implemented correctly, automate the process of managing current market conditions and forecasting future ones.

Correct implementation requires KPIs should be implemented across several critical business domains:

  1. Sales
  2. Risks
  3. Team
  4. Systems
  5. Financials
  6. General management

For example, just one of the KPIs AVA monitors allows our clients to have constant knowledge of their business’ receivables with automatic alerting, allowing the business owner to see what affects, and potential changes to the collection process, it has on the business.

Business intelligence

Take into consideration a shorter time to collect debtors has a positive impact on cash flow whereas a greater time period indicates that it will take longer to collect its accounts receivables which could have a negative effect on a business’s payables, the dreaded Pandora’s box of potential insolvency possibilities. 

Now let’s take this same example and put it in the eyes of a master franchise, or an area manager. You now have more eyes, more support, more management, on making areas of the business better, faster.

Couple this with a list of KPIs, monitoring all financials in depth, alongside other areas of business such as mentioned above, teams, systems, sales procedures and possible risks.

You now have a proactive approach to building a sustainable group of businesses, with each individual entity flourishing at its best. 

Optimising your working capital during this time is imperative, but it is also important to maintain positive on-going business relationships with existing suppliers, service providers and even your staff.

Now if this could all be done through automation, with very little input from the franchisees perspective, this gives strength to both franchisee and franchisor alike to better the performance of both individual entities and a network collectively. 

Benefits for the franchisee (sole location/entity)

  • Be kept up-to-date on their metrics
  • Receive regular performance reports
  • Understand how their performance compares against other businesses within the same network
  • Quickly identify areas of business needing improvement and attention

Benefits for the franchisor (head office/master franchise)

  • Benchmark financial and non-financial metrics
  • Visually rank, compare and benchmark all franchisees
  • Identify key areas of concern, preventing individual company / entity failure
  • Deliver insight and value to franchisees
  • Better support/management customised towards individual franchisee needs

With the right system, franchisors and accountants can instantly diagnose which companies need help, are able to offer a proactive service to advise them, increasing client survival and retention. Franchises and businesses with multiple locations or clients are also able to reduce both time and costs by automating the financial review process.

A system like AVA has the additional benefit of taking into consideration the view of the business’ performance from the business owner’s perspective, catering for requests from  advisors/accountant when looking at raising capital or similar requirements.

This is broken into categories such as sales, team, financials, systems, risks and general management, allowing for a more tailored approach for success. 

Having the right business intelligence does not have to be either a timely, or costly addition to a business. With the right tools it proves an increase in productivity, in some cases by up to 90 per cent, decreases overheads and expenses and ultimately protects the fundamental foundation of a business for growth, sustainability and success.