Reviewing Your Franchisees Business Plan

by Paul Monoghan, Howarth Franchising Group

A recent survey of a small but influential group of franchisors showed that, in spite of what their Franchise Agreement might say, only 8% could confirm that all of their franchisees completed an ongoing, annual Business Plan.

Moreover less than 70% had a formal review process in place that allowed them to review their franchisees' performance against those Business Plans.

Business Plans, and the financial forecasts that they include, ought to form an intrinsic part of any franchisee's or franchisor's business.

Since franchisors, in the main, depend on their franchisee's performance for their own income it is difficult to see how any franchisor can write their own Business Plans without reference to their franchisees' forecasts.

A franchisor may be planning on increasing their revenue by, say, 10% but if the average of their franchisees are planning on a 5% increase the franchisor's revenue forecast is unlikely to be achieved on a like-for-like basis.

In the current economic climate where achieving sales increases is challenging and external credit controls are becoming more and more stringent, the ability to forecast and monitor cashflow is becoming increasingly important.

It has long been known that more businesses fail through lack of cash than lack of profit and this is, perhaps surprisingly, equally true of the banking community whose role it has been to fund businesses' investment requirements.

Franchisors ought to have a better understanding of these factors than their franchisees but do they? Well, probably, Yes….. but if they are only getting a relatively small part of the information that they need to advise their franchisees are they really doing everything they should to protect both their own business and those of their franchisees?