Answering Your Finance FAQ's
Everything you ever wondered about financing a franchise simplified.
By Laura Wright and Diana Mead, OnePoint Franchise Accounting
Laura Wright and Diana Mead are the owners of OnePoint Franchise Accounting, a firm specializing in accounting services exclusively for franchises. Over the business’s 21 years of operation, they’ve seen the myriad of mistakes franchises can make, especially emerging brands as well as the simple steps that can be taken to avoid them. Their franchise finance experience and your most frequently asked questions answered.
How can franchises ensure they’re setting themselves up for long-term success?
Diana: “The most important thing an emerging franchise can do is properly manage their cash in the early years, as they are both growing their business and ensuring they are building a strong and scalable infrastructure. If you run out of cash, then you don’t have a business.”
Laura: “While in the early stages, some financial decisions may seem inconsequential. However, they actually have a lasting impact that can affect the financial foundation and limit the brand’s growth.”
What’s an example of a common mistake you’ve witnessed young franchise systems make?
Diana: “As young systems grow, they often mistakenly hire or promote employees who are inexperienced and lack the skills necessary to help the brand flourish through the different stages of growth. It makes sense, as these businesses are in the early growth stages, have limited cash and need all-around utility players. That said, you’re also making critical decisions to lead and shepherd the brand financially. If you have people in leadership roles who are not focused on the basics, such as managing cash flow, setting up the necessary financial reporting systems to gain insights and selecting what providers would best support a growing franchise, you can end up in a place that is difficult to recover from. Hiring the right talent, with the right blend of franchise sophistication and experience is critical to a franchise’s long-term success.”
Laura: “Although franchising does possess similar attributes to other businesses, it is distinct in nature. An understanding of multi-unit economics, the regulatory landscape of franchising and the nuances of the franchisee and franchisor relationship are paramount in franchising. Overall, a professional degree doesn’t equate to experience in franchising, so hiring the right way both internally and externally truly matters.”
What basic accounting, finance systems and processes should be set up early to ensure success?
Diana: “Franchising is built on uniformity of systems, efficiencies, procedures and processes, including your accounting and financial reporting tools. Mandating uniformity in these systems up front, communicating the ‘why’ early and often to your franchisees and sharing with them information to help them be successful will not only allow you to scale more quickly when the time is right, but will also reduce friction with your franchisees.”
Laura: “Too many young franchises make this mistake. The one key item to require, as it relates to compliance by your franchisees, is a single point-of-sale system. Allowing different POS systems requires additional time and resources for your existing staff to access, track and report on results. Different variations of POS systems also make collecting royalties via automated clearing houses difficult. As the franchisor, you likely cannot have one master login across all these systems to pull sales data and collect ACH payments.”
Diana: “Providing and requiring a uniform chart of accounts from day one will save you future headaches and help minimize fraud. A uniform chart of accounts makes it much more likely to accurately report and analyze profit and loss data, reduce the risk of royalty fraud, and have confidence in financial metrics reported in the Item I9 of your disclosure document.”
How can franchisors make sure they stay on track once they have their team and tools in place?
Laura: “Bad habits start early. If you don’t institute a level of rigor from the first month forward, many franchisees will not prioritize tracking and managing accurate and timely financials. Franchisees are busy trying to successfully launch and run their franchise locations. Often, what gets lost is focusing early on the basic key financial drivers that will tell you how your business is doing and how to maximize success.”
Diana: “As ridiculous as it may seem, many franchisees will not prepare financial statements for months. We can’t tell you how many franchisees we encounter that are only concerned with the level of cash in their bank and neglect to focus on the key drivers of their business. These can be labor costs, food costs and marketing expenses.”
Laura: “If franchisors don’t require the timely and accurate submission of financial statements from day one, the franchisees will develop poor habits. Reversing those behaviors is nearly impossible.”
Any final advice for young franchise systems?
Diana: “There’s often a euphoria that comes when you sell your first franchise and collect your first franchise fee. Regardless of how strong your unit economics and your brand are, there will eventually be a first misunderstanding or disagreement between the franchisor and franchisee. The question is: what can you do early on to minimize those occurrences from a finance and accounting perspective?
Ensuring early and often communication about difficult topics will not only help you create a stronger relationship with your franchisees by setting clear expectations, but will help you set your brand up for success. As a franchisor, having that visibility into your franchisee’s performance will give you a clearer picture of your brand’s overall health and allow you to forecast more accurately for challenges and opportunities in the future.”
Laura: “Starting off with the right talent, tools and processes can help you avoid a lot of headache and hassle down the road. Remember: you’re building your business for success today and in the future. These key foundational tools can help you grow your business confidently and securely.”
Diana Mead has been a leader in the financial services industry for 20 years and currently serves as Managing Partner at OnePoint Franchise Accounting. Diana has a history of growing businesses — whether she’s worked as their CFO, President or Operating Partner. Diana has been awarded the Forty under 40 award by Denver Business Journal and was named one of the top 25 most powerful women in Colorado in 2018 by the Colorado Women’s Chamber of Commerce.
As Managing Partner of OnePoint Franchise Accounting, Laura Wright works with emerging and established franchise brands to set up solid unit economics for long term saleable growth. With a career spanning more than 20 years in investment banking, investment management and finance, Laura has served as Partner, Senior Vice President and Director of Finance for organizations such as Boettcher and Company and First Western Trust Bank.