FRANCHISE BASICS
BANKING ON
YOUR FUTURE Your new business is not an ATM, so don’t treat it like one.
Y
ou’ve done all the research and you’re ready to sign the franchise agreement, armed with a brilliant business plan. Keeping a tight rein on your financials will ensure you don’t unwittingly sabotage the business. One of the reasons franchisors choose franchising to expand their business models is the belief that franchisees’ financial investments give them ‘skin in the game’. The resulting shift in mindset from employee to business owner is most obvious when new franchisees, who were previously managing the business, lift their performance level once the business is their own. There’s a reason the term ‘take ownership’ is so commonly used in business circles. As a business owner, even as a
franchisee, you are ultimately responsible for your business, its performance and its finances. So it makes perfect sense for a new business owner to focus on getting a good return on their investment. That’s what any financial institution will do. Kate Groom, a business advisor and former franchisor, and co-founder of Franchise Accounting & Tax, draws a simple parallel between banks and business owners. "When you buy a franchise, it's a good idea to 'think like a bank' when it comes to your investment in the business. Every franchise buyer invests some of their own money when they buy a franchise.” So what does it mean, to think like a bank? If you have a bank loan, your bank will want to get a return for the risk it is taking. Of course franchisees need to be
rewarded for the risk they take in investing in the business, but this value is greatly decreased if the business has been unable to pay the franchisee a salary. “We think it's important to see that the business has the capacity to repay this investment - on top of the wage you take for the day-to-day role you play, for instance as manager or pool technician,” says Kate. “You should allow for the business to repay all your investment within the first franchise term. This is exactly what a bank does with a loan. They want it repaid — and so should you!" And the ability to take a banker’s view of the business will also help keep the flow of cash on track, and easy to manage. Kate is adamant that while it is the easiest thing in the world to treat your flourishing business like an ATM, it is inadvisable to do so.
MAY/JULY 2021 | 66 | WWW.FRANCHISEBUSINESS.COM.AU
