ADVERTORIAL Keep an open book Managing the risk associated with a retail franchise network M
any retail businesses with a franchise channel are faced with a complex array of risks. These chiefl y stem from the
relationship with their franchisees. The Risks
• Lease – many franchisors hold the head lease and then sub-lease the premises to the franchisee. Should the franchisee default on their payment or cease trading, then it becomes a liability to the franchisor. • Credit risk – the major creditor for many franchisees within a retail business will be the franchisor, consequently the franchise network will be the largest collective debtor for the franchisor. This will relate to the stock purchase and management fees, the chosen credit policies have cashfl ow implications on both parties. • Business failure – should the franchisee
fail or be unable to maintain the corporate standards, will this damage the corporate brand. Failure may also result in a loss of income and the assumption of additional liabilities for the franchisor.
Recommendation
Many of the above risks can be managed through understanding the fi nancial performance of franchisees. This is vital for a franchisor who has licensed its IP and brand to a third party. The individual franchisee’s ability to perform well and deliver the brand values is intrinsically linked with the franchisee’s fi nancial health. Ideally an open book accounting approach should be used, at the very least during the start- up phase of each new franchise. Where possible, the franchise agreement should be constructed to allow for open book accounting, mandatory accountant(s) and a standardised retail accounting system, thereby offering standardised reporting across the franchise operation. These are what we at CounterBooks consider
the three cornerstones to effective fi nancial and risk control within a franchise retail business: • Open book accounting • Mandatory accountant • Standardised retail accounting system
This will help to minimise franchisee churn and other fi nancial risks and maximise network profi ts. A mandatory accountant will accumulate knowledge over time on the various intricacies of the franchise model. Accounting networks like DFK have national representation and have experts who can deliver substantial tax savings as well as other accounting services. Once a standardised accountancy system has been adopted, the franchisor can begin to benefi t from standardised performance monitoring. A standardised system that stores all accounting data in a single database gives franchisors real fl exibility in reporting allowing them to identify possible failures at an early stage or to benchmark best practice. A standard chart of accounts used on different accounting systems does not. n
Find out why some of the world’s largest retail franchises use CounterBooks
Improve performance Manage risk Reduce costs
CounterBooks is a leading online retail accounting system. The suite includes a Retail Accounting System for franchisees to improve performance, whilst the franchisor can gain control and transparency with the Management Information System.
Cloud-based Drill down
Standardised reporting
Benchmarking Rapid deployment Easy to use
Workflow management
Minimal Capex Network reports Full general ledger Multi-lingual Purchase compliance
Contact us for a demonstration on how our system can improve your business 020 7099 1050 |
contact@CounterBooks.com 36 |
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