Path to gaining meaningful management information
Article by David Williams Q.F.P.
The Royal Bank of Scotland
As a banker, the only real way you can assess how a business is performing is by being provided with regular, up to date and meaningful management information.
However, many businesses do struggle to provide enough detail to enable a thorough assessment. To an extent, one can understand why an independent business, with often limited resources, may not have this information, but franchises should be in a much stronger position being ‘cloned’ businesses with benchmarking against the rest of the network assumed as part and parcel of the package offered by the franchisor.
The power to insist on provision of financial information is there if the franchise agreement is vigorous enough, but in a lot of cases the requirement is only to provide annual account rather than monthly or quarterly figures.
Of course there are franchisors that do have robust systems which enable them and the banks to assess the performance of their franchisees thoroughly. However, many more will focus on turnover and, whilst important, the lines in the accounts below this are far more significant. There is a well worn, but very true phrase, ‘Turnover is Vanity, Profit is Sanity, but CASH IS KING!
In an ideal world, all franchisors would have the same financial management information systems for each of their franchisees. Why have different systems if they are, in effect, the same businesses selling the same things? This would then provide everyone involved with an uncomplicated method of analysing trends, comparisons with other franchisees, what products are selling (or not), how the margins differ between franchisees, who is spending what on marketing and what effect is it having etc.
Of course we are not in an ideal world but there is no reason why all new franchisors and existing franchisors on renewal could not have the correct clauses for provision of financial information in their agreements. There are, of course, bfa Affiliates who offer the above services and franchisors could look to incorporate this into the package they offer with a commensurate cost included.
Even with such robust information being provided, there may be few people within the franchisor’s organisation who understand a profit and loss account, cash flow statement and balance sheet so and how does a franchisor use this information to benefit the franchisee and their own business? My belief is that these aspects should be an integral part of every franchisor’s training strategy not only for their franchisees but also their own finance staff.
There are also bfa Affiliate providers offering such training and using the knowledge gained from these courses will enable this to be exploited to identify any issues and use this to positively motivate franchisees to make them more successful or identify where more support may be required.
Dave Williams, Director of Franchising for RBS England & Wales and NatWest Scotland.
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Last Updated: 23-October-2013