What-Franchise-Issue-20.3

Planning and funding Has the current economic climate affected franchisor’s financial planning and access to funding? Phil dives straight in with some big facts: “Once interest rates started shooting up north of 4%, the ‘debt service cover’ used by banks to measure if a business can afford their debt repayments were indeed getting ‘thin on the ground.’ If a bank was offering a 30/70 loan, they might now be changing this to 50/50 where the bank loans the franchisor 50% of the money and the franchisor puts in the other 50%. In this situation, the franchisor is going to have to get more investment from an incoming franchisee as the project costs rise. This in turn means the franchisor now needs to attract franchisees with more cash to put down. Is this necessarily a bad thing?Who knows, but it is a direct result of interest rates going up. Managing cashflow As one who works for an accountancy firm, we asked Phil how franchisors can manage their cashflow effectively, whilst expanding their network. “Although I am not an accountant myself, the most important thing for any franchisor is to use decent accountancy software,” he responded. “The packages available are very powerful; they don’t replace your accountant but, rather like Theo’s Franscape, they help you understand how your business is growing and how you are spending money. It’s very easy to set up automated reports so you can keep an eye on your P&L and cashflow. It’s also crucial to regularly check back in with your business plan to review it. Are you where you expected to be? If you are behind, find out why. If you are ahead, you should identify what you do well and do it even better.” Franchisee support Finally, we asked Phil what financial strategies a franchisor could use to support struggling franchisees, without compromising the overall network. Phil suggested a mixture of methods. “If you have been using a good accounting package you should be able to use that data to pinpoint their problem. If they are under financial pressure, you could give them a holiday from their royalties, help them with some extra marketing investment, and provide extra training or coaching. If you think they are failing in a specific operational area, get out on to the ground with them. Sit in on calls and visits, lead from the front. Introduce them to some of your highest performers to learn from the best. You could also discuss their funding arrangements; banks are quite amenable to these conversations and might consider a capital repayment holiday or an overdraft. “If taking the financial pressure off lets them fully focus on what they need to do commercially, then that’s a sound decision. No franchisee comes equipped with all the skills necessary to run a business, so take the time to work out where their strengths and weaknesses lie.” And finally, what does Phil expect to see in the budget in March? “The Government has got a hard job to do, but if they think they can raise more money from the British public and in turn squeeze our standard of living even further, then I think they are going to have a very hard job selling it – I think it could be risky for them. I’d like to think there are some areas of wastage and schemes of their own that they could save money from before they come to us again.” BFAAcademy On 15 April 2025, the BFA is hosting an QFP Module online event, ‘How to Understand Franchisees Financial Performance 2025’, to enable franchisors to better understand business finance and accounts, and how this should be applied to the monitoring of a franchise network. For full details visit portal.thebfa.org/event/ view/EV-QFP-FP-FINANCE-2025. “If taking the financial pressure off lets them focus fully on what they need to do commercially, then that’s a sound decision. No franchisee comes equipped with all the skills necessary to run a business” The BFA (British Franchise Association) is the voluntary self- regulating governing body for franchising formed in 1977 by the major franchising organisations looking to accredit and promote those franchise systems that meet the strict ethical and business criteria of a good franchise. F U R T H E R I N F O R M A T I O N 54 WHAT FRANCHISE Issue 20.3