Franchising · 23 February 2016

Fantastic franchises come down to accurate accounting

A consistent structure is required to make sure you don't end up drowning in paperwork
A consistent structure is required to make sure you don’t end up drowning in paperwork

Far from being a stable and consistent way to achieve growth, franchising your brand without creating the right finance and accounting infrastructure can mean more headache than success.

Franchising is proving a popular growth strategy, with new figures from the “British Franchise Association/NatWest Franchise Survey 2015” revealing impressive uptake.

In total, franchising was responsible for a £15.1bn contribution to the British economy during 2015, growth of more than ten per cent since 2013. With the number of people employed by franchises climbing by a similar ten per cent to 621,000, there are now 44,000 franchisee-owned companies in existence.

Interestingly, one-third are run from home by individuals who may have little previous experience of operating a company. As an owner and operator of franchises, here are some key factors to consider if you want to stay on top of the figures and ensure each new franchisee is a knockout.

(1) Have a consistent accountancy system

It is often the case that new and existing franchise owners, when they first get going, set out to have as many franchisees on board as possible. Making money from the initial fee is great, but that recurring fee based on annual turnover is only going to be good if that franchisee is doing business well.

A good way to stay on top of this is a consistent accountancy system. This means you can track the performance of your franchisees, whether you only have a couple or a national footprint. Making sure everyone is using the same accountancy system makes mission critical information easily accessible and is useful for recruiting franchisees – as a standardised system means they won’t have to worry about managing that aspect as much.

This in turn makes it easier to standardise back-office processes and alert you earlier to any problems that may be in the offing.

(2) Make sure all of your franchisees are producing the same management reports and create a tracking system

As your number of franchisees grows, it will become increasingly important to benchmark them against each other. Driving down into detail about what is making the successful ones tick, and the failing ones flounder, will not only help you with those slipping under the surface but also inform what future approaches are worth your time.

Set it up so that each of your franchisees submits management reports by the same time each month – it’s all too easy to slip into a situation where each seemingly operates by itself as if a solidarity company.

The reason you created the franchises opportunity in the first place was that the brand had considerable strength, so think about treating them more as a subsidiary than an independent entity. However, you must be careful to not make franchisees feel like it is not their own thing. It comes down to the franchisor treating it as a subsidiary in their processes, but allowing the franchisee to feel confident in it as their own business. Management reports will serve to benefit them, as they’ll have control and clarity on where their business stands.

Tony Tappenden is MD of kitchen makeover firm Dream Doors, which operates as a series of franchises. He believes early training of new franchisees should include financial management, covering everything from day-to-day finances to managing annual figures and projections.

Depending on the background of the franchisees in question, there are going to be elements of running a business that are familiar, he believes, but equally others that they have never come across. “That’s why it is important for the franchise to offer training in a wide range of different business disciplines,” he said.

(3) Consider what kind of partnerships you can build with financiers to help current or potential franchisees

One of the many opportunities that comes with growth is the synergies that can be created. The more you learn from the growth of the early franchisees, the more you can educate and guide future ones.

Partnerships, whether they are with financial organisations or simply service providers, give franchisees an early leg up. Furthermore, incentivising them to take on recommended finance providers or product specialists further strengthens your efforts to create a universal operating system where each franchisee is run the same.

In an interview with Business Advice back in January, franchisee Lee Eaton, who runs Manchester-based business Sign Express, revealed one of his tip tops for someone starting out on the journey was asking to visit some of the existing franchisees to see what support structure they are currently getting from the franchisor and what the future projection/growth plans are.

Showing that you have a great support structure in place, with lots of great partnerships, will attract the very best future franchisee prospects.

(4) Think about quality of franchisees over quantity – make sure you are conducting due diligence

Franchise owners always need to focus on quality rather than quantity. A strong pipeline of future prospects is so important.

If you’ve already worked your way up to a position where you have a roster of franchisees, then you’ll probably already have a decent idea of what kind of due diligence is necessary – but it is always worth adding new checks.

The more effective your initial homework is, ensuring the correct franchise partner is selected, the less hand-holding you’ll have to do further down the line.

Figures from the British Franchise Association consistently show that franchises have one of the lowest rates of failure, but you still don’t want to be part of that statistic.

Create a blueprint of key questions you ask possible franchise partners – think of it as a kind of job interview. Brand protection as a franchise offering grows is absolutely crucial, and each new franchisee is going to be an ambassador for you.

Sticking close to our top tips should help ensure you don’t develop that migraine, but instead build a sustainable business.

Sign up to our newsletter to get the latest from Business Advice.

TAGS:

ABOUT THE EXPERT

Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

On the up

Find out how KPMG Small Business Accounting can really work for you

FIND OUT MORE