Overcoming financial challenges facing franchises during the global pandemic
A franchise is a contractual arrangement where a franchisor allows a franchisee the right to use its trademark for products and services and business systems and processes to operate the business.
The franchisor will provide operating manuals, training, quality control, marketing, and advertising, plus usually selecting a site. As a result, the franchisee benefits from an established business model, reputation and processes and receives ongoing support resulting in a higher likelihood of success. The franchisee will generally pay an initial fee and ongoing royalties as a percentage of sales revenue.
Here are the key challenges facing franchises during the global pandemic and an outline of the financial business processes that a franchisor can outsource, so you don’t need to worry about them.
Outsourcing can provide you with complete visibility over your financial position to make informed decisions.
Seven aspects that franchisors need to worry about:
1. Demonstrating Effective Leadership
Showing effective leadership is a way to improve performance and develop strong relationships with franchisees. Franchisors need to deliver clear and open communication, including listening to franchisees and learning from their approaches. Franchisors should be empathetic and flexible, realizing that despite the franchisees best efforts, they may not achieve the desired results, especially given the current COVID challenges.
A franchise committee is a great way to open communication channels to enable franchisors to draw insights from franchisees and collaborate on best-practice ideas. However, it is also essential that franchisees show the same effective leadership to their employees. The absence of effective leadership could adversely affect business performance and profitability and create poor relationships with franchisees.
2. Ensuring Lines of Communication between Franchisors and Franchisees
In any business, communication is vital to success. A franchise provides franchisees with a network of support and opportunities to collaborate with peers within the network. Open communication allows franchisees to benefit from the franchisor’s vast knowledge, which provides enormous benefits.
By levering off the understanding of others within the network, the franchisee can facilitate the growth of the business, optimize their time and save money, helping them succeed. In addition, franchisors can benefit from the insights of franchisees to work towards best practices.
3. Clear Messaging to Franchise Customers
Clear and consistent customer messaging is critical to maintaining positive customer perceptions about how the business is performing. When addressing issues that arise, especially during the global pandemic, customers need to trust that a clear, consistent message is delivered. This is essential to maintaining customer loyalty. For example, customers must perceive that their health and safety are being protected.
Collaboration between franchisors and franchisees is necessary to achieve this. Some operation differences, such as different regulations applying to franchisees in other locations, may require a different approach to overcome challenges.
4. Managing Public Relations (it has increased importance)
A positive public image is built with exceptional customer service and connection with customers and employees. This is crucial to developing the long-term loyalty of customers, and ultimately the business’s success. Maintaining a positive public image is now more challenging due to COVID emphasizing customer and employee health and safety, and increased complexities with navigating the changing legal requirements.
Establishing a positive public image requires a business to go above and beyond the evolving legal requirements to show that the welfare of customers and employees is a priority. Franchisors must maintain a balance between reducing expenses to ensure the viability of operations and ensuring this does not negatively impact the customer and employee experience, causing long-term damage to the business’s reputation.
5.Building Franchisee and Employee Loyalty
Franchisors build lasting relationships by establishing a good rapport and engaging with franchisees. Franchisors are instrumental in providing leadership, guidance and continued communication with each franchisee to ensure they feel part of the network. Providing this support will ensure franchisees are satisfied and build loyalty.
Employee loyalty is earned when employees feel valued and respected. This can be demonstrated with increased remuneration, benefits, acknowledgment of their efforts, providing a work-life balance, and showing that the franchisor is committed to the workforce’s wellbeing. In addition, employees will be invested in helping the business succeed, which results in improved productivity and an improved bottom line.
The success of franchisee and employee loyalty will trickle down to customers who will have a better experience with the business and are more likely to be returning customers if valued and appreciated create an enhanced business image.
6.Maintaining an Adaptable Franchise Model
Franchises that adapted their business models have coped better during the global pandemic, and some have shown improved performance. However, due to the nature of the franchise structure, which requires uniformity, a franchisees ability to adapt is limited. Franchisors must collaborate with franchisees and lead with an adapted operating model to enable quick and efficient changes. When implementing the changed operating models, it is also essential that the franchisor provides clear communication to the franchise network of the changes.
The food services industry has adapted to provide food delivery or pick up only models and contactless payments to maintain their sales volume. Some have even experienced an increase in sales volume. Industries that offer services and products have shifted their focus to product sales and improved their e-commerce platform to facilitate online sales. Personal services have adapted to provide online delivery of their services, for example, professional therapists providing telehealth services. Some businesses have recognized that they no longer need office space and offer employees work at home options, thus reducing costs. Others have sought it as an opportunity to apply new technologies to their business operation.
7.Retaining and Recruiting the Right Franchisees
When building a franchise network, franchisors need to develop and maintain strong relationships with the franchisees and ensure they receive the support they need. The franchisor needs to perform due diligence when determining who they choose to be franchisees and should avoid recruiting a new franchisee as a means of boosting revenue. Poor selection of franchisees may lead to poor performance and negatively impact other successful franchisees through poor customer experiences and damage to reputation.
Franchisors, here’s what you definitely don’t need to worry about:
Franchise Payroll Compliance and Bookkeeping
Outsourcing the increasingly complex payroll compliance functions will reduce a franchise risk and legal exposure. Accario can give support with payroll and bookkeeping functions and implement best practices. This will free up time to focus on operating and growing the business and provide peace of mind that the back-office processes are taken care of.
Payroll can be time-consuming, and there are complex legal requirements to which to adhere.
Accario provides efficient and cost-effective solutions for the entire payroll process, such as:
- Determining wages, salaries expenses including benefits
- PAYG withholding taxes and payroll taxes
- Banking – payments to employees
- Payroll records.
Accario will have your bookkeeping requirements sorted and provide accurate and up-to-date financial information, including:
- Data Entry
- Accounts Receivable
- Accounts Payable
- Processing invoices
- Account reconciliations
- BAS lodgment
- Monthly reporting
- Business forecasting
Tell us about your bookkeeping requirements and we’ll let you know exactly how we can be of help!
What we can help you gain visibility of:
1. Ensuring Financial Viability of Franchise
When determining the feasibility of a business operation, the franchise needs accurate and timely access to key metrics to aid decision making. A professional can help create a clear picture of business health and visibility over the finances. By outsourcing to Accario, we can help with:
- Business Plans
- Return on Investment (ROI)
- Break-even analysis
- Cash flow forecasting
- Revenue and Expense forecasting
- Funding sources
- Working capital requirements
2. Maintaining Sufficient Capital for New Franchises
Many franchisees have experienced hardship and suffered enormous losses as a result of the global pandemic. A franchisor may consider reducing their royalty and fees to lessen the financial pressures on a franchisee. Accario can provide vital economic data such as breakeven points and insights regarding financial support requirements a franchisee will need to overcome challenges. The franchisor can use the insights to create a well thought out plan to ensure the continued viability.
3.Maintaining Sufficient Capital for New Franchises
The cost to support a new franchisee will generally exceed the revenue generated from royalties and fees. Therefore, a franchisor must ensure they have enough working capital to support the franchisee during the initial period, making the business profitable. Accario can provide a cash flow forecast, accurate financial reports, and a calculation of breakeven points to determine the number of franchises that can run at a loss. Insufficient working capital is a common reason why a franchise will fail.
Accario specializes in Franchise outsourcing. Payroll, superannuation, awards rates – we will do all of that for you. Common benefits gained by Franchisors include:
- Ensuring payroll compliance
- Achieving greater visibility of inefficiencies
- Identifying maverick behaviors
- Tracking franchisee business budgets
- Gaining performance insights
- Having a centralized accounts process across the group
- Saving up to 70% on cost
We are platinum Xero partners and certified in Spotlight Reporting. We would love to help you with your accounting and finance needs. Talk to us here.
How Accario helps Franchisors
For over a decade Accario has been providing technology-enabled accounting & finance outsourced services.
Explore our franchise services here >
We aim to transform your finance back-office into an accelerator for growth. Accario serves ~200 companies across Australia & UK, from accounting firms and franchises to large-scale enterprises. Let’s chat.
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