5 minute read
MONEY MAKES THE WORLD GO ROUND
Franchise Accountants offer 12 tips to help franchisees improve cashflow
Cashflow is the life blood of every business. With consumer and business confidence low, getting the ‘money in, money out’ equation wrong may have terminal consequences, so here are 12 tips to help franchisees get it right.
1. The high jump
How high is the bar you need to clear? In other words, how much money needs to come into your business to cover all your outgoings eg. rent, payroll, finance costs? We call this cash neutral position ‘break-even’. If you don’t already know your break-even, take a look at your financial reports and do some maths. If you need help, ask your accountant to advise you.
2. Increasing sales
The first step to improving your financial position is increasing sales. There are four basic levers to increasing sales:
Get more customers
Get existing customers to buy more frequently
Get customers to spend more with each transaction
Increase prices
Work with your franchise support team to develop strategies for these.
3. Increasing gross profit
Gross profit is calculated as the price you get for selling a product or service minus the direct costs of buying or delivering it. Improve this margin to improve your cashflow.
Discuss it with your franchise team. Is there room to increase your gross profit dollars by moving your pricing whilst still remaining competitive? Alternatively, can you reduce your cost of sales by changing suppliers? This is an area where being a franchisee is a real advantage over being independent – are you making the best use of the franchise’s buying power?
4. Reducing overheads
It’s not only direct costs that you should look at. Is there any discretionary spending you can trim? For example, subscriptions can add up – do you need them all? Can you renegotiate your insurance premiums by, for example, tweaking the excess? Is there any way of negotiating a rent variation or relief? Would any of your staff appreciate shorter hours?
5. Accounts receivable
Many businesses offer credit terms to customers whereby the customers pay for product or services a month later. These unpaid amounts are called ‘accounts receivable’, and they will be one of the first things an accountant looks at when analysing your business. Are your customers paying you on time? Do you have an effective follow-up system? Can you offer some sort of incentive to reward prompt payments?
6. Speed up stock rotation
Purchasing stock locks up cash; only when the stock is sold and paid for does it convert to cash. This can be a fertile area for improving cashflow.
Investigate your stock holding levels, the number of lines you actually hold, and sell-through times (how long stock stays on the shelf). One business we advised had enough stock for two years’ worth of sales!
7. When do you need to pay?
Every business has creditors – the suppliers of products and services whose bills you need to pay. Different suppliers offer different payment terms, or different terms to different customers. As part of a franchise, you should be able to benefit from better terms than others. Are you getting the best possible deal? Talk to your suppliers and your franchisor. You don’t know if you don’t ask.
8. Lowering the bar
If you have bank loans or an overdraft facility for funding your business, you may be able to restructure the terms to reduce the amount of monthly outgoings. This is an effective way to improve your cashflow. Talk to your franchise banker and ask what can be done.
9. How much do you need?
The money that the owner of a business takes out to live is called ‘drawings’. Keeping these in proportion to the cashflow that the business earns is another area you can focus on. If sales are soft and earnings are down, then it may be time to reduce your drawings until business improves – it’s a temporary adjustment.
10. Talk to your peers
One of the benefits of owning a franchise is that are working for yourself but not by yourself. Being part of a franchise network means you can reach out to other franchisees in the group, compare notes and gain insights to help you improve your own situation.
11. On your side
Perhaps the biggest benefit of a franchise is being able to draw on the experience and wisdom of your franchisor team. It’s like having a business coach, but better. They can access relevant benchmarking data to identify areas for improvement or profitable opportunities, tweak marketing strategies to attract more customers, help negotiate with suppliers or landlords, and in some circumstances grant short-term royalty relief. Talk to them and listen to their advice.
12. Get professional help
If you are facing cashflow challenges in your business, it’s important to take advice and act early. While your franchisor will know a lot about how to operate your business with maximum efficiency, they probably won’t know all about your personal situation and funding arrangements.
That’s why you should talk to a franchise specialist accountant to carry out a business and personal finance review that covers all the above and more. Remember, good advice pays – not costs.
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Franchise Accountants www.franchiseaccountants.co.nz
Contact Philip Morrison
0800 555 80 20
021 22 99 657
