Financial Guidelines: 6 tools that can help you boost the bottom line
Last time we looked at how unit economics offers a progressive strategy for tracking and managing costs and revenue at franchise locations. It's a tool that has become a necessity to many savvy franchisees, and it's a tool that should be in place from day one.
Unit economics strategies not only help business operators run lean and mean business machines, but â€“ as briefly mentioned previously - they also help them when the time comes to borrow money from lenders. Keeping a close eye on expenses and revenue â€“ and all the variables affecting those all-important numbers â€“ is simply a smart strategy.
Steve LeFever has been both a professional banker and a successful entrepreneur. His years in the business world have given him a unique perspective on financial analysis, business management, and practical business decisions. He's the founder of Business Resource Services (BRS), a consulting firm that provides financial management education training, network benchmarking, performance group facilitation, and bookkeeping services to the franchise community.
LeFever understands the importantance of unit economics strategies and he has created a checklist of financial tools that can help a new â€“ or established â€“ franchisee boost unit performance numbers. He boils it down to six key components:
- Chart of accounts
A standard chart of accounts is essential for every franchisee. Work with your franchisor to get one or create one. It's worth it because a consistent recordkeeping format keeps everyone "on the same page" and paves the way for productive comparative analysis.
- Financial statements and bookkeeping
You should keep your books in orderâ€”either internally or by outsourcing to a qualified financial accounting firm. Without timely, accurate data, no organization knows its status, and sharing data is impossible.
- Create a performance "scorecard"
A one-page financial report card that tracks key profit and cash drivers is the most effective action step you have to introduce and maintain focus and accountability. You and your managers should all understand how to read it and use itâ€”and be held accountable. Together you can measureâ€”and improveâ€”performance.
Every network of businesses should benchmark itself. You can do this among all of your units, or by examining system-wide benchmarks if the franchisor provides them. These profiles of both median and top performers not only create yardsticks of performance, but can also produce a "best practices" environment that is extremely effective in creating a culture of accountability and performance.
- Know your costs
In this tight economy, it is an absolute must for franchisees to know their costs. A break-even analysis is absolutely the most valuable financial management tool available. Make sure your managers and any other key people know how to calculate and use a comprehensive break-even analysis. When it comes to cost analysis, you must be able to trim with a scalpel, not a hatchet.
- Franchisor support
Ask forâ€”and useâ€”whatever financial assistance tools your franchisor supplies. Train your managers in financial analysis and expect them to be able to use all the tools listed above to assist each unit in performing a strategic assessment of the business.