ADVERTORIAL
Apples and apples, or apples and pears?
Chris Roberts on how to ensure accurate financial comparisons within a franchise network
whether we are better or worse than the average. But what is the average and how do we know if we are comparing like with like? In the franchise community, we have
W
a great opportunity to compare business performance because we use a specific business format and should, therefore, all be doing the same thing in the same way and getting very similar results. There are, unfortunately, many franchise networks that don’t maximise this opportunity, even though their franchise agreements require franchisees to provide periodic or end-of-year accounts. The reasons are varied. It could simply be too much focus on turnover rather than profitability (this in itself could be the subject of a whole article or blog!), it could be that
e would all probably agree that comparisons are useful because they help us to understand
too many franchisees within the network don’t fully understand the value of monitoring key performance indicator trends from their accounts and are disinterested (surely it’s the job of the franchisor to try and change this attitude), or perhaps it’s simply an acceptance that franchisee accounts are often going to be drawn up differently. For example, one franchisee may include a certain cost in the gross profit calculation and another may include it ‘below the line’ as an overhead, thus making comparison inaccurate and a complete waste of time. So, to ensure franchisees gain the benefits of accurate comparison – ie knowing and understanding useful key performance indicators – use a common and accurate format for their financial projections and share best practices as a result of this financial analysis, they may need some strong guidance from their franchisor or an outside party who specialises in this sort of thing.
At Franchise Finance, we have developed
a one-day workshop that is now available to our clients, both new and old. We work with the franchisor to build a one-year monthly projected profit and loss and cashflow forecast for a typical franchisee. It is excel- based and works on a double entry basis, thus producing a self-balancing projected trial balance. It also enables all franchisees to record their monthly profit and loss performance against the plan, automatically showing the variance. This enables franchisees to monitor their own performance and the franchisor to have accurate comparable information to use in a variety of ways. n
Author’s note
Chris Roberts is a director of Franchise Finance. For more information on financial training courses and workshops visit
www.franchisefinance.ltd.uk.
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