Franchisee Performance

By Paul Monaghan, Howarth Franchising

Having spent money, time and effort recruiting your franchisees you will wish to ensure that you and they are reaping the benefits of following your system. A formalised structure for monitoring their performance will help you do this.

The most fundamental principle of franchising is that franchisees are granted the right to operate copies of a franchisor's proven business system. By doing this they dramatically improve the chances of successfully establishing a new business. However, as with most things in life, with rights come responsibilities. The franchisee is under contract, through the Franchise Agreement, to operate their franchised business in precisely the way stipulated by the franchisor. It is important, therefore that the franchisor monitors the performance of their franchisees to ensure that they are fully meeting their responsibilities.

However monitoring performance is not just about ensuring compliance. Having comprehensive information about the franchisee's financial performance will allow the diligent franchisor to anticipate any problems that might threaten the franchisee's and, therefore, the franchisor's business. Most franchisees are naïve in terms of financial management when they first commence their trading life. They might not understand the importance of a strong cashflow or the problems that a lack of it may produce. Do not assume that they will receive this advice or training from their financial advisers / accountant. All too often the first time an accountant learns about the progress of his client's business is when he prepares the first set of accounts a year after trading commences. If there is a problem it could well be irrecoverable at this stage.