Multi-Unit Franchisee Magazine Issue I, 2015 | Page 78

Finance BY STEVE LEFEVER AND ROD BRISTOL

Boosting Unit Profitability
Tips for improving your bottom line

W

e’re often asked, “I’ve
been in this system four
years. When should I start
making a profit?” This is
a disturbing question at best—as if profits
were somehow time-sensitive: just wait
long enough and, Presto!, profits. If only
it were that easy. Here are some thoughts
on improving your bottom line.
• A disaster waiting to happen. Unit
profitability and performance are, at their
core, a function of three key drivers: 1)
financially trained franchisees, 2) an effective performance model, and 3) accurate financials. Whether owing to cost or
priorities, many franchise networks are
lacking in one or more of these areas. It is
critically important that franchisees have
the financial skills and knowledge to drive
up both profitability and cash flow in their
operations. How is this accomplished?
• Reach out and teach someone. Traditionally, if there are two people involved
in a business, one knows how to make it
and one knows how to sell it. The financial/
management side of the business is typically left to the accountant, the banker, their
spouse, or to no one. People just hope it
works. Sadly, most discover that hope is not
a strategy. Most franchisees receive excellent
training for initial startup, operations, and
sales/marketing. Financial training is often
overlooked completely or delivered by the
corporate accountant who reinforces the
expectation that finance is “dull and boring.” Franchisees need to learn to use the
numbers to tell the story of the business,
and know how to use their financial intelligence to develop a performance report
card. It will clearly identify strengths and
weaknesses—and point the way to developing a “spot on” action plan.
• What gets measured, gets managed: the three-legged stool. The performance model that has proven most effective in driving up unit profitability is a
three-legged stool: 1) education, to provide
the foundation, 2) benchmarking, to provide the yardstick, and 3) accountability, to
provide the discipline. Built around the key

76

term “measure,” this process consistently
drives performance improvement.
• Education beats shooting from the
hip. At a minimum, franchisees need to
understand the four linchpins of finance:
1) how a company makes a profit (i.e.,
break-even analysis), 2) how to develop and
use a financial performance scorecard, 3)
understanding the crucial role of the balance sheet in managing cash flow, and 4)
managing the credit line and bankability.
An effective financial curriculum, such as
our Profit Mastery, provides franchisees
both the framework and the tools to make
insightful decisions in a recovering economy,
rather than simply “shooting from the hip.”
• Benchmarking: you can’t measure without a yardstick. Talk is cheap.
Everyone has a story about how they’re
doing. Producing a financial benchmarking study cuts through the rhetoric, provides a performance report card for the
network, profiles the top performers, and
provides a reliable framework to measure
best practices.
A well-developed financial benchmarking
process is an indication of both a maturing network and a professional approach
to performance. Financial benchmarking
presents an unexcelled opportunity for
networks to do what everyone talks about:
work together. In the relatively few systems
that produce timely, meaningful benchmarks, franchisees consistently experience
measurable increases in performance—and
regularly report these benchmarks as among
the most valuable resources provided by
the franchisor.
• The power of peer groups. Imagine a group of 8 to 12 franchisees meeting
quarterly, twice in person and twice online,
to share complete financial performance results that have been packaged side-by-side
in a scorecard format. The group is led by
a trained facilitator. Each group member
prepares a concise situation analysis to
present to their surrogate board of directors, the other group members. This is the
basis for a performance group. One member likened the initial meetings as “getting

naked in front of strangers,” but added that
it’s “the most beneficial business-related
activity I’ve ever undertaken.” The bottom
line: in networks that use peer performance
groups, group members consistently outperform non-group members.
• Accurate financials: GIGO. For
many franchisees, completing their financial statements is a major chore that leads
to a sigh of relief: “My work here is done.”
The fact is, nothing could be further from
the truth: the owner’s job has just begun.
Their job is to take these statements and,
based on the story the numbers tell, evaluate their performance and chart a course
for the future.
Sadly, th is management perspective is
often sidetracked by faulty financial information. Without accurate and timely
financials, you become a member of the
Christopher Columbus School of Management. When Columbus left he didn’t
know where he was going, when he arrived
he didn’t know where he was, and when he
returned he didn’t know where he’d been.
The good news? It’s never too late to
focus on the unit profitability and cash flow
that foster performance and growth. As a
franchisee, you have invested your capital,
time, hopes, and dreams in your company.
Every month you send a piece of your bottom line—yes, your bottom line—to your
franchisor, which becomes their top line. It
is in everyone’s best interest to drive your
bottom line up by finding the tools and resources proven to be effective in doing so.
Steve LeFever is the founder and chair of Business Resource Services (BRS), a
Seattle-based consulting firm
that provides financial management education, network
benchmarking, performance group facilitation,
and bookkeeping services for closely held businesses under its Profit Mastery brand. Rod
Bristol is senior vice president at Profit Mastery. Learn more at www.profitmastery.net,
800-488-3520 x14 or write to lefever@
brs-seattle.com.

MULTI-UNIT FRANCHISEE IS S UE I, 2015

muf1_c_finance(76).indd 76

1/15/15 3:47 PM