FRANCHISE ADVICE
C
OVID-19 caught the world by surprise. As well as the human tragedy, the financial consequences will stay with us for years to come. Such an event is called a Black Swan.
First identified before the 2008 financial crash by Nassim Nicholas Taleb, Black Swan events are unpredictable and can have far-reaching, catastrophic consequences. Taleb, a professor, writer and former Wall Street trader went on to say, however, that they can also serve to strengthen systems against future occurrences.
How can franchisees plan to strengthen their businesses and mitigate risks for the future following this Black Swan? It's important to have a clear overview of your business and then put plans in place. You need a clear snapshot of your situation to know how heavily the business is geared, how much you owe and how much your business is worth. The strength of assets and investment need to be tied in. In the good times if you have too much debt then, when the economy shifts, what then? The best way to get a handle on the numbers
is through a set of management accounts. Normal year-end accounts can be up to 18 months out of date by the time they are filed and so management accounts, which provide
the latest information every month, are useful to paint an accurate picture of the here and now. Having this information enables you to make
informed decisions. If you’ve had a good month, you know about it. You will also know if there is a downward trend and you can take action. In the current climate, you may need to make calculated decisions. For example if you need to run your franchise at a loss in the short term to keep engaged with 50 per cent of your clients while business comes back on line, you need to know how much this will this cost. Realistically, how long can you do it for? In this way, management accounts can enable you to model scenarios and plan for an uncertain future. Having a handle on the financials also
means you can react immediately as situations change. This agile approach may mean you can negotiate preferential rent on new premises that become available or invest in new equipment while it’s at a reduced price. As an accountancy and business advisory
firm, the most common mistake we see from franchisees is not having management accounts but sometimes not having a business plan at all! New franchisees need a solid business plan to attract funding but also to serve as a roadmap for the development of your franchise. But this is also applicable as your franchise develops.
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