6 Tips to Boost Your Franchise ProfitabilitySep 26, 2023
Many entrepreneurs buy a franchise model hoping that having their own business will lead them to have independence so they can enjoy life much more.
The challenge is that a lot of the time these new franchisees don’t fully understand the franchise business and how it should work financially to have the successful business they desire.
But, achieving time and financial freedom and growing a franchise business requires more than hopes and dreams.
In fact, that lack of knowledge tends to be the main cause of franchisee failure.
In this blog post, we’ll go over what you need to learn and understand as a franchisee to be able to maximize your franchise business so you can then achieve your entrepreneurial goals.
1. Understand your financial statements
The first critical thing you need to know how to read and interpret is your profit and loss statement, line by line, and with a high level of expertise.
When you comprehend your monthly financials and understand what each one of those line items says, you’ll be able to plan what to do if you are not meeting your business expectations.
If you do not feel like a master at your numbers, your P&Ls, or even your balance sheet, then you need to invest time to acquire this knowledge so you can make much better business decisions.
2. Know your Break-even
You have to calculate what is the break-even point of every one of your franchise units because this is one of the most important numbers in your business.
Why? The break-even point indicates when you don't have losses or profits. It is that moment in which you start making money.
Some franchise owners go as far as knowing exactly when they reach break-even during the week, saying something like “I start making money on Thursday afternoon/Friday morning/ Saturday by noon”. That means that any dollar that comes into the business after that will be money for them.
- But beware: that doesn’t mean that it’s profit. You still have to pay for variable costs because they're still variable. And at the end, all you get is what's left over.
If what I just said is not something you're familiar with, you have to learn not only how to calculate this number but how to get to that break-even.
You need to understand where you are with your business and how to accelerate your pace so that, instead of breaking even on a Saturday, you can move it up to a Friday or ideally to a Thursday.
3. Attack your fixed costs
The good news is that even though we call them fixed costs, it does not mean that they're not movable.
You also have to learn that you do not save only on product costs, labor costs, or whatever other controllable costs may exist. There are certain fixed costs in your organization that you can still negotiate, improve upon, and maybe even eliminate.
That will make your business financial picture a much more positive one.
4. Review your financials monthly against your annual business plan
This is related to understanding each line item of your P&L statement. But in this step, what you need to do every month is monitor your financial statement and review it with a high level of detail.
That will help you understand where you are, what happened that month, where your business performed better, in which areas you met your plan, and the things you have to adjust to multiply that result.
- This is critical for the financial health of your franchise business.
An extra tip: make sure your accounting service provides these P&Ls no more than 15 days after the end of the month, ideally, 10 days. The sooner you can get your financial results for the month, the better!
5. Review your KPIs weekly
Aside from looking at your financial statement every month you have to review your key performance indicators (KPIs) every week, so you don’t wait until the end of that month to change what’s not working.
If you wait until next month to make things better, perhaps it can be too late. But if you monitor your weekly KPIs dashboard, you can have a cause an impact on your organization within the next week.
By acquiring this habit and this culture of metrics, you’ll be able to see where you are week to week compared to last year, and also compared to where you want to be.
If you're not where you expected, that’s when you move on to tip number six.
I think this is probably the most important tip for your financial success because the moment you see that your business is not going in the right direction, you must do something about it.
If you just look at your numbers and hope for the better by next week or next month, you're not taking control of your business and your time and financial freedom goals may escape.
If something is not working, you need to look at your processes, procedures, systems, and policies, and also at what your team is doing about each one of these metrics. And then, change what’s necessary, whether it is to coach, teach, follow up, or get involved.
Look at the target of each of your KPIs. See where you are. And, if there’s a difference, act!
- It is up to you to change your business results and achieve your financial goals!
Those are the six recommendations to boost profitability in your franchise business.
If any of this information is new to you or you are not fully clear on how to analyze what I just shared with you, The American Franchise Academy is here for you!
We provide franchise leaders like yourself with the knowledge, tools, and resources they need to be successful with your franchise business. We do that through our best-in-class programs, specifically designed to help franchisees, district managers and unit managers be successful.
- Can you read, comprehend, and analyze the financial statement of your franchise?
- Do you know when each of your units gets to break-even during the month?
- Are you leveraging your P&Ls to make smart business decisions?
- Have you clearly defined the policies, processes, and procedures that will help you achieve your goals?
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