Businesses can’t operate without money, pure and simple. That’s why financial skills are a must-have for any successful franchise owner. But don’t worry: you don’t have to be a former CFO in order to succeed. In fact, unless you’ve worked as a financial professional, I don’t recommend managing your franchise’s financials on your own. When I became a franchise owner, one of my first tasks was to hire a smart, trustworthy accountant. I generally recommend that my clients do the same.
You still need certain financial skills, however, if you want your franchise to succeed. Successful business owners typically have a good head for numbers, plus a focus on financial maintenance and financial accountability. Let’s break down each of these skills and look at how they apply to franchise success.
Skill #1: A Head for Numbers
A successful franchise owner has to be reasonably good at math. This doesn’t mean you have to be able to do complex equations in your head. But you need to be comfortable making back-of-the-envelope calculations, to help guide you in on-the-spot decision-making. You also need to be able to read a profit-and-loss (P&L) statement, the primary financial document of your business. Reading a P&L requires dealing with running totals, percentages, and financial concepts such as debt service, capital vs. operating expenses, and margin. Your accountant will set up the equations for you, but you need to be able to vet their work.
Franchising also requires some specific mathematical skills that may not apply to other types of businesses. Most franchisors require their members to pay an ongoing revenue share and marketing fee. The revenue share (and sometimes the marketing fee) is usually calculated as a percentage of the money your business makes. You must be able to understand your revenue-share and marketing agreements and how to comply with them, which can include some complicated math.
Skill #2: Financial Maintenance
Businesses require ongoing financial maintenance. Your accountant will help with some of this, but you (or, if you’re a semi-absentee owner, a manager you hire and oversee) will need to handle the remaining tasks. Generally, you can expect your accountant to maintain your P&L, manage payroll, and file taxes. You should expect to be responsible for:
- Keeping records of expenses and providing those to your accountant
- Monitoring business bank accounts for issues
- Receiving and depositing cash or check payments from customers
- Paying bills such as building rent and vehicle leases
- Making loan or other debt payments
- Purchasing day-to-day supplies
- Tracking and managing business assets and inventory, if relevant
- Keeping current payment information on file with suppliers and service providers
Some people call this “financial discipline”: the process of maintaining your business’s finances, day-in, day-out. Financially disciplined franchise owners recognize that they can’t just check their bank balances once a month and assume everything is OK. They know they can’t treat inventory management as a once-a-year event. Instead, they constantly ask themselves, “What can I do today to keep my franchise on a healthy financial footing?”
Skill #3: Financial Accountability
Financial maintenance (or discipline) and financial accountability are closely related. A financially disciplined franchise owner also thinks about accountability: how to hold themselves and their employees responsible for the financial success of their business. Financial accountability means remembering the goal of profitability, spending money purposefully, and doing the hard work of creating revenue. To help encourage financial accountability among your employees, give them revenue targets and reward them for succeeding. If you have to say “no” to an expense request because the money is earmarked for essentials, or turn down an idea because it won’t generate much revenue, help your employees understand how staying the course will benefit everyone.
As the franchise owner, you have a special level of accountability–not just to the business itself, but to your family and to the employees who depend on you for a livelihood. You must constantly weigh your wants against the business’s needs, recognizing that the buck stops with you. That might mean paying your employees but not yourself. You might have to forego a pet project to cover essential expenses, or delay an expansion because of financial constraints. When your business succeeds, however, accountability becomes reward. Making the difficult decisions means you also get to enjoy the greatest benefit.
What if You Lack Financial Skills?
If you want to be a franchise owner but feel you lack the necessary financial skills, don’t give up. Ask yourself why you feel that way. Is it because you’re not a “numbers person”? That’s not necessarily a deal-breaker. You might be able to partner with a trusted friend or family member who can shoulder that part of the load. If you’re reasonably good with math but just don’t enjoy it, consider creating a reward system for yourself. For instance, promise yourself a meal at your favorite restaurant as motivation for doing your quarterly P&L review with your accountant. Do you think you lack skill because you’ve never handled business financials before? If you’ve successfully managed the budget for your household, your place of worship, or a non-profit, that’s a good foundation. Some good business books, an online course, or a class at the local community college may be enough to fill the gap.
And of course, I’m here to help. I’ll be happy to talk with you about your skills and help you figure out whether franchising makes sense for you. My services are always free! All you have to do is schedule the call.
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