Getting Started with Profit Conversations

by Kate on May 18, 2010

How much are they making?

Lots of franchisors like the idea of benchmarking, yet find it time consuming and difficult to implement and either don’t get started or the process stalls. I often hear that it’s hard to get franchisees to provide accounts – which is an obvious roadblock.

Yesterday, I was chatting with a bunch of accountants about what it takes for a franchisor to know the results – sales and profits – that are being achieved by franchisees.

We talked about the ways that data can be collected and how to do this efficiently, but I began to wonder whether sometimes we overcomplicate matters and get so focused on the trees that we miss the forest.

I reflected on my first role in franchising; it was 1994 and I was financial support executive with Kwik Kopy Australia. We thought it was important that our franchisees should have – and use – a P&L each month and my job was to make this happen.
One of the things we did was produce a monthly Key Data Report for our new franchisees.  It was a one page form that showed dollars and percentage of sales for key items like:

  • Revenue (by sales category)
  • Cost of Goods (same categories)
  • Gross Profit
  • Rent
  • Staff wages
  • Equipment costs (lease/depreciation etc)
  • Overhead expenses
  • Operating Profit
  • Owner’s drawings and loan repayments
  • Debtors, Creditors and cash at bank.

I compared the results for each franchisee with their budget for the month and year-to-date. We’d then have a conversation about what the differences were and how our support team could help address any issues.

For our more mature franchisees we did some benchmarking. This involved collecting financials once a year and using a spreadsheet to calculate the average sales and costs and we shared the results with those who participated. Over several years our benchmarking became more sophisticated and grew from this simple start to include all franchisees.

These days technology has provided franchisors with a multitude of ways to gather, benchmark and report financial and operational information. Sadly, however, lots of people get caught up in the process of creating process; with deciding whether to go with in-house systems, outsourced systems, on-line solutions so on.

No surprise, then, that programs can take a long time to implement, thus postponing for too long the opportunity to get on with actions that deliver sustainable performance and long term network health.

It’s easy to get caught up in the ‘wretched hows’ and forget that we can make a difference one conversation at a time, one franchisee at a time. Sometimes a good place to start is with what’s simple and easy to do with what’s available.

What action have you been postponing while you contemplate ‘How’? How might it change things if you did less planning?

{ 2 comments… read them below or add one }

1 Kate Groom May 19, 2010 at 10:03 pm

Hi Chris,

Great point about “do vs. improve” and certainly businesses that are nimble and willing to iterate have great opportunity. That said, does the number of franchises that struggle to reach critical mass reflect a challenge with practical application of this approach in the franchise space. To what extent should start-up franchises be prepared to adapt (maybe radically change) their model as they roll it out?

Kate

2 Chris Khoo May 19, 2010 at 1:14 am

It’s really the “do vs. improve” debate isn’t it?

In the pre-dotcom crash startup world, entrepeneurs used to get lots of VC money, take a long time to build something, do a massive launch and then find a whole host of problems (which usually killed the business). Today, they launch small and fast, listen to users, improve and iterate. End result = much better survival rate.

Chris

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