Multi-Unit Franchisee Magazine Issue II, 2017 - Page 72

Finance BY ROD BRISTOL Is Your Franchisor Looking for a Buyer? Unifying fi nancials for a possible sale F or a very long time, franchisees and franchisors maintained an arm’s-length relationship: the franchisee sent the franchisor a sales report and a royalty check each month and the franchisor pretty much left them alone. Whether or not your multi-unit business was profi table hadn’t really been a big concern of theirs, as long as they got the royalty check each month. This “old school” approach to the franchisee- franchisor relationship is obviously is not the case for all franchisors. Lately, however, some franchisors have become more aggressive in trying to get monthly P&L statements from their fran- chisees to make sure their units actually are making money. You see, right now, in boardrooms of many franchise networks there are a lot of “deleted expletives” go- ing on about not having that information in hand—a result of the desire of those franchisors to sell to a private equity fi rm, and the private equity fi rm requiring proof of unit-level franchisee profi tability. Maximizing system value To maximize the value of their franchise network for a potential sale, franchisors must prove franchisee profi tability and demonstrate high unit-level econom- ics—the foundation of every successful franchise network. So where do they start, and what is one of the fi rst indica- tions that your franchise network might be up for sale? It begins with either the implementa- tion of (or refocusing on) one of the most fundamental fi nancial tools required by every successful franchisor genuinely try- ing to drive franchisee unit profi tability. It’s such a simple tool, and it is so often overlooked or undermined by lack of dis- cipline. It’s called the chart of accounts. [Ed. Note: Chart of accounts defi nition, from Investopedia: “A listing of each account a company owns, along with the account type and account balance, shown in the order the accounts appear in the company’s fi nancial statements. ‘Chart of accounts’ is the offi cial accounting term for the display of this infor- 70 MULTI-UNIT FRANCHISEE I SS UE II , 2 01 7 benchmark studies, which ultimately help drive performance groups, the single most effective process for driving change and profi tability available to a franchisor. It all begins with a chart of accounts, and preferably the requirement for franchi- sees to use a standard accounting package such as QuickBooks for their bookkeep- ing. This standardization improves and streamlines training, fi eld support, and ultimately, franchisee success. The most sophisticated franchise networks provide a chart of accounts, a QuickBooks accounting package, and have processes in place to receive accurate, timely fi nancial information from their franchisees each month. (This informa- tion also enables franchisors to deploy fi eld staff more effectively and point them to where they are needed most.) Benchmarking fi nancials As more franchise founders look for exit strategies, driving unit-level profi ts becomes a necessity. mation, which includes both balance-sheet accounts and income-statement accounts. The chart of accounts shows assets, liabilities, equity, revenues, and expenses, all in one place and broken down into subcategories. Each chart in the list is assigned a multi-digit number to help identify the account type (e.g., all asset accounts might start with the number 1).”] Oh, the excuses we hear! “I gave it to them but no one ever uses it.” Or, “They take it to their accountants who change it to suit their own professional tastes.” Etc., etc., etc. Unit-level economics The great value of being part of a fran- chise network is the opportunity to work together as franchisor and franchisee to drive up individual unit-level economics and, as a result, the entire network’s prof- itability and ultimate value. To achieve that, everyone must do things in the same way, fi nancially. This foundation allows the franchise network to complete Another sign your franchisor may be seri- ous about selling is the implementation of a benchmark study. If the franchisees in a network are truly profi table, the fast- est way for a franchisor to demonstrate that to a prospective buyer is through the completion of an indepen аѡɐ)䁉ɬՑѡЁٕɥ́ѡ)ɽх䁽Ʌ͕́ѡݽɬ)]ѡ́ɵѥɕ́)ѥɕɑѡ́٥Յ)Ʌ͕̰ѡɕѕɕЁ)ɽ٥ɅͽȁݥѠѡ)ٕɥѥͥѥٔչеٕ)́ѡݽɬɕեɕѡ)Քѕѡɥمєե)ɴQ͔́ɬՑ)ٔͼɽٕѼɕمՅ)ȁ䁙ɅͽȁѼѡ)%ѕ䁥ѡȁ)́ɔɔɅ͔չ)ȁЁɅѕ́ѡЁݥ᥵)ѡȁمՔѡɥمєե䁵ɭд)ɥ٥չеٕɽ́)ͥ䰁ݡձѥѕ䁉́ѡ)ѥɔɅ͔ݽɬ)I ɥѽ́ᕍѥٔ٥)ɕͥЁЁAɽЁ5ѕ)ȁٕȀ啅̰Ʌͽ)Ʌ͕́ٔɽٕ)ѡȁəɵ)չЁɽх䁉䁙)ݥѡAɽЁ5ѕɽ聙)Ʌɭչх)䁵1ɸɔЁܸ)ɽѵѕ乹а́)ɥѽ̵͕ѱ