Cathryn Hayes, Head of Franchising at HSBC
The UK has been watching and waiting for the green shoots of recovery to demonstrate that the economy is on the way up. There are still mixed signals though, with more shops closing, Eurozone issues, lack of growth and many feel that ‘this is as good as it gets’ – at least for the time being.
However, whatever the current economic climate, the importance of monitoring and benchmarking franchisees’ finances should not be underestimated – early indication of any problems is vital to help strugglers survive.
As franchisors, you will need to help your franchisees concentrate on the important issues. Building cash reserves will ensure that the business has the resources to offset a drop in income – it may however slow down expansion and franchisors need to help their franchisees to manage the demands of growth against the need for continued investment.
There are various financial issues to consider – as usual, cash is the key here. Customers may delay payment – do your franchisees have the financial stability to survive if this happens? Managing overheads and identifying savings seems obvious – is it being done? How much are franchisees taking out of the business – do they need to consider their spending levels? Are they managing their banking facilities well – going overdrawn without agreement or exceeding limits can be costly.
It is always vital to keep a close check on how much money the business is owed and whether franchisees are keeping on top of invoicing, chasing, credit checks etc. if they are involved in doing this themselves. Is the franchisee very dependent on a small number of large customers – this could lead to major problems if one of these fails, owing considerable sums.
Are your franchisees working well with their bank? Some of the key potential problem areas are listed below – these are the things which can lead to a breakdown in the relationship:
- Not supplying agreed information on time
- Failing to make loan repayments
- Repeatedly exceeding overdraft limits
- Unexpected or persistent trading at a loss
- Not using facilities for purpose agreed (personal expenditure?)
We have seen a few instances where a franchisee suddenly stops trading, leaving debt behind with the bank, landlord, suppliers and often the franchisor too – but some of these ‘surprises’ might have been picked up sooner with strong monitoring and control systems.
Benchmarking against other franchisees can be a really good way to identify problem areas early on – but the key then is to address the issues quickly to ensure that the business has the best possible chance of survival. Don’t just look at the sales figures, overheads and profitability are vital too. Annual financial statements are not enough to control the business. You also need to forecast what will happen, and to have up-to-date information on recent performance.
Get the basics right to encourage and foster success, whatever the state of the economy.
