8 simple ways to manage your cash flow as a franchisee

Published · 4 min read

A key part of running a franchise is to do with balancing the books. No matter whether you operate a single franchise outlet or multiple stores, manage your cash flow as a franchisee well if you want to succeed. It doesn’t matter what size your business is, the same rule applies to all – manage your cash flow well if you want your franchise to thrive.

One of the advantages of investing in a franchise operation is that detailed profit and loss accounts will be available from your franchisor, based on similar-sized franchises that are already trading. These accounts will be a useful indicator for you to successfully manage your cash flow.

If you want your franchised business to run smoothly, increase efficiency and maximise profits, follow these simple cash flow tips.

1. Know your break-even point

It sounds obvious but do you know what your franchise’s break-even point is? If you do, you are on the right path to efficient cash flow management. If you don’t, it’s worth finding this out as it will form the basis of your business’s financial goals.

If your franchise is seasonal, for example, the demands on cash flow may vary at certain times of the year, so it’s important to know what your break-even point is. Make sure you have this figure in mind as it will come in handy when you’re making key financial business decisions.

2. Reduce debt on your balance sheet

Reducing debt will undoubtedly have a positive effect on any franchisee’s business. Businesses want to keep hold of their cash reserves and will choose to take full advantage of any credit terms offered.

To reduce debt on your balance sheet, look at your terms. Are you offering the same lines of credit as your competitors? Could you look at an earlier payment date for your sales invoicing without risking customer retention? Explore these and put the right measures in place to succeed.

Take a look at your admin processes and see what can be improved
Take a look at your admin processes and see what can be improved

3. Review your admin processes

Do you know how efficient your franchise’s admin processes are? A lot of franchised operations have clear admin processes in place, as detailed in their franchise operations manual. It’s worth following them for tried-and-tested results if you’re not doing so already.

However, by doing a review, you might identify processes that can improves how your cash flow is working – and that’s something beneficial that you could speak to your franchisor about.

One area that can have a positive impact on your franchise’s cash flow is credit control. Perhaps it’s worth reviewing your current procedures to see if you can achieve faster payments from your customers. If you need further help with this, work in conjunction with your franchisor.

4. Recruit the right employees

Effective staff recruitment processes will have a positive outcome on your franchise’s cash flow. Recruiting new employees can be an expensive process, especially if the wrong people are taken on. Meanwhile, having a high turnover of staff could have a knock-on effect on areas such as training, where additional funds need to be spent to get new staff up to speed with your processes.

To combat these issues, put the work in to recruit the right employees the first time round, who have the skills required to do the job (and will only need training to enhance their roles). Create a working environment that engages and enthuses your staff, and encourages them to stay with you for the long haul.

And as far as your salary bill goes, keep up with the going rates of pay in your franchise territory. It might be one of your franchise’s highest outgoings, so it’s worth keeping a close eye on this. Any successful business needs great staff, so weigh up the costs against productivity to avoid putting a strain on cash flow.

5. Take advantage of supplier credit lines

Keep hold of your business’s funds and maximise your cash flow by taking full advantage of credit lines offered by your suppliers. This is a good way of helping to avoid temporary cash flow hitches.

Invest in your relationships with your suppliers and pay them on time. If a temporary cash flow issue occurs and you’re unable to cover an invoice, contact them immediately. Speak to them about your situation and see if they can extend your credit.

If they are willing to do so and you make a new arrangement, stick to it. An important element of business is trust – it takes time to build but can be broken in an instant. Remember, communication is key.

A contingency fund can make a big difference to your business if an unexpected event occurs
A contingency fund can make a big difference to your business if an unexpected event occurs

6. Have a contingency fund in place

Budgeting for the unexpected is important. With the best will in the world, sometimes a hitch can occur out of the blue that could make a dent in your firm’s finances. These unexpected expenses can hit a business hard, therefore it’s essential to have a contingency fund in place.

7. Avoid splashing the cash if you don’t need to

Rein in your business spending by only purchasing the items that are essential to your firm. It can be tempting to spend lots of money on your business when you’re making a healthy profit but you never know if leaner times are just around the corner, so spend wisely.

8. Use technology to manage your admin

Take advantage of technology that will help you to manage your franchise’s finances and admin, and keep your business in great shape. Invest in cloud accounting software, as it will help you to stay on track with your finances and show you how your franchise is performing instantly.

Not only will it save you time and money, it’s an ideal option if you’re out of the office and need to access invoices and quotes – you can do so on a device such as mobile phone or tablet computer.

You can also use your accounting software to take the headache out of lengthy admin processes by ensuring you are compliant with tax rules and regulations.

Having easy access to all of this information will enable you to get on with running your franchise without being bogged down with endless paperwork – and missed deadlines.

By managing your franchise’s cash flow effectively, you’ll be able to save time, reduce costs and identify potential opportunities to develop your business. Get your cash flow working for your franchise and you’ll be one more step on the way to maximising your investment.

How do you manage your cash flow as a franchisee? Share your tips in the comments below.

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