Over the past few issues of the Multi-Unit Franchising Report we have highlighted a handful of franchisees and their efforts to keep better tabs on the income and expenses of their units. Such unit economics strategies have become central to many franchisee operations. As the old adage states, you can't manage what you don't measure.
Greg Jones, the CEO of the Bookkeeping Express franchise system, and also a franchisee with five locations of Five Guys Burger and Fries in Florida, is an example of a numbers guy who is constantly tracking financials and profitability.
He's gained tremendous financial experience as a franchisor. Bookkeeping Express provides all kinds of financial and accounting services to business clients. And with that firsthand knowledge, he knows how to keep a watchful eye on his own endeavors with his Fives Guys franchise units.
"You cannot run an effective business without paying attention to your financials," he says. Jones says one of the nice things about the franchise model is that franchisors have a general idea of what unit profitability should look like based on historic trends. He says that helps significantly with franchisees new to the world of financial reports and unit economics.
Tracking financials and managing unit economics are all part of a growing financial sophistication trend within franchising.
"Your financials are your reality check, and your crystal ball. They tell you where things stand--positive or negative--and what you need to do to change from negative to positive," says Jones. He says it's impossible to run an effective business without paying attention to the details in the financials. "I regularly review my P&L, balance sheet, accounts receivable, and accounts payable."
Savvy franchisees are learning that boiling down their most essential cost and revenue numbers into a one-page "scorecard" report helps them--and their team members--manage at a glance. Jones says he uses a scorecard because in today's market, "there's only so much you can do to move the needle." The scorecard helps him set targets that enable him to gauge the performance of each unit. "We benchmark for all units and hold them accountable to the financial scorecard."
Considering the state of franchise lending during the past two years, unit economics reporting is not just a concept for better management of your franchise locations and improved profitability--it's something your friends at the bank want to see, too, if you have any hope of borrowing money in today's economic environment.
With strong unit economics numbers, franchisees reduce their risk as measured by lending institutions. Jones says that bankers today want to see unit economics numbers. "It's a part of the equation for lenders," he says. "They also put a lot of emphasis on how long the unit has been open and what's available for collateral." But tracking and presenting your numbers is critical to lenders.
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