Financial advice for franchisors

Economic downturn

How can I assist my franchisees in a period of economic downturn? 

 

Cathryn Hayes is the Head of Franchising for HSBC Bank plc. Previously, Cathryn held a number of managerial appointments within the bank and spent several years as a branch manager where she gained a depth of experience in lending to businesses. She is an Associate of the Chartered Institute of Bankers.

 

The possibility of a UK recession now appears more likely with the British Chambers of Commerce warning that firms are going to face a difficult and risky climate over the next six to nine months. House prices continue to fall, interest rates have not fallen and levels of consumer debt remain high - factors adding to economic uncertainty.

 

As franchisors, you can help your franchisees:
• Review overheads. Benchmark your franchisees and help them consider how they compare against their peer group
• Build value by ensuring the product or service offered is different from competitors
• Achieve greater stock efficiency. As a franchisor, are your own systems robust and effective? Are you able to obtain better credit terms from suppliers or ask for better discounts in return for prompt payment.
• Consider leasing instead of outright asset purchase, enabling you to spread repayments over a period of time instead of making a one off investment.
• Consider how IT is used in the business - can it be used to further cut costs and improve efficiency - what are your best franchisees doing that the others can learn from?

 

It is vital to keep a close check on how much money the business is owed and whether franchisees are keeping on top of invoicing, chasing, credit checks, etc. Is the franchisee very dependent on a small number of large customers - this could lead to major problems if one of these fails?

 

Are your franchisees working well with their banks? The problem areas that can lead to a breakdown in the relationship include not supplying agreed information on time, failing to make loan repayments, repeatedly exceeding overdraft limit, unexpected or persistent trading at a loss, and not using facilities for purpose agreed (new boat, cars, holidays!).

 

Ensure your franchisees keep good financial records and forecasts. Banks will look more favourably on finance requests if you show you're in control and can plan. Review your marketing strategy and sales performance regularly. Keep an eye on the competition.

 

Have you got the right management and support team in place?

 

The overall message is, whatever the state of the economy, get the basics right to encourage and foster success.