ADVICE
“You need to monitor more than just gross profit and net profit margins; however, monitoring hundreds of KPIs is likely to be counterproductive”
A
common question I am asked by both franchisees and franchisors is: “What is the most important piece of advice you could give on maintaining
good business and financial health?” My answer is simple: you can only effectively manage a business when you are monitoring its performance. To maintain good overall business health, you must closely monitor selected key performance indicators (KPIs) and then, importantly, act on the intelligence this provides. Pivotal to effective monitoring is selection
of a relevant range of KPIs. Selecting and monitoring either too many or the wrong KPIs is a waste of your valuable time; don’t be a busy fool! You need to monitor more than just gross profit and net profit margins; however, monitoring hundreds of KPIs is likely to be counterproductive. Instead, it is those that have a real impact on business performance that are most useful to management and decision makers. Select a variety of KPIs, both financial and non-financial, and then use the data you have collected to strategise and take sensible and proactive steps to drive your franchisee network forward.
It is very useful to have a full picture of historic franchisee performance (assuming the franchisee is up and running and has produced management information). This is an important point of reference for comparative purposes and helps you to identify trends that guide and inform during the decision-making process. Keeping the data that forms this track record in an easily digestible format will also assist
during the resale process, should the franchisee (or you as franchisor) decide to take this course of action in the future.
Further to this, closely analysing your franchisees’ current position as a ‘snapshot in time’ is extremely powerful. You can use this data to rank performers across the network, allowing you to select franchisees that need your dedicated time to either flourish and reach the next level, or improve performance in troubled or challenging areas. Essentially, the KPI data gives you the knowledge in black and white of where business improvement can be achieved. Real-time trends, in combination with historical data, give a solid platform to project forward. This is a useful indicator for both you as a franchisor and your franchisees. You will have a clearer idea on likely management service fee (MSF) levels (assuming a percentage of revenue is operated as opposed to a flat rate) and the franchisee can identify their expected earnings over a given period. Projected financial accounts, compiled with insights from KPIs, sales and cost assumptions, serve multiple purposes. These include (but are not limited to): • Evaluation of growth and expansion plans • Applications for finance • Cashflow monitoring.
Whatever the purpose, having a defined ‘monitoring’ process gives credibility to projections and undoubtedly benefits franchisees and you as a franchisor. The data you collect and analyse is critical to decision making, giving a broad and
comprehensive picture of the organisation’s environment. In the ever-changing and complex world of business, having powerful decision-making data can prove to be the difference between the success and failure of a franchise. If a franchise fails to monitor a critical success indicator, concerning trends can easily be overlooked. This highlights, once again, that selection of KPIs is absolutely imperative! Revolutionary technological advances make monitoring KPIs across a franchise network easier than ever before. Simple-to- understand, user-friendly, real-time dashboards give graphical and numerical feedback to satisfy your requirements (typically following a configuration or setup process with your involvement and guidance). If you haven’t already done so, it’s well worth doing your research into the products available on the marketplace, as the capability of these systems can totally transform businesses for the better. My advice could not be any clearer: monitor, monitor and monitor some more! As a franchisor, having network-wide visibility of carefully selected KPIs can be transformational and have a significant impact on that all- important financial performance. Make sure you aren’t missing out on MSF or any other opportunities! n
Franchise Finance
www.franchisefinance.co.uk info@franchisefinance.co.uk
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