This is the home of the Franchising Best Practice 500 series of franchise best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
About the Franchising Best Practice 500 Series
We have termed this series the Franchize Consultants’ Franchising Best Practice 500, because there really are that many Best Practice areas and aspects in franchising.
In franchising there are best practices from a franchisor and franchisee point of view, and there are best practices from a pre-entry to an operating standpoint – from both perspectives. In turn, some best practices are very specific (e.g., ensure your royalty is optimal or have all franchisees operating to a Common Chart of Accounts) to more conceptual (e.g., demonstrate a leadership focus on improving franchisee profit). Such is the nature of franchising.
It is fair to say that the main focus of the Franchize Consultants’ Franchising Best Practice 500 will be from the franchisor point of view and in terms of what a franchisor could or should do. But the intention is that that is of good mutual benefit to franchisees. It might even, dare we say this, help some franchisees push their franchisors to improve a bit. Accordingly, we think any franchisees that view this series will quickly see that we have a strong focus on franchisee returns.
Franchising is an area where you never stop learning. Like anything, the more you learn about a particular area the more you typically realise you don’t know. Franchize Consultants is in it’s 30th year of operation and yet we continue to develop new franchising insights daily.
Whether you are a franchisor or a franchisee, a service provider, a student or have another interest in franchising, we hope you find the Franchize Consultants’ Franchising Best Practice 500 valuable.
Best Practice # 1 Leadership Focus on Franchisee Profit and Returns
This is something which we have written and spoken about a lot. Franchisee profit is a principal focus in our work with would-be or established franchisors, when evaluating a company contemplating franchising or reviewing an established franchise system.
The crux of the point here is that a franchisor needs to understand and help franchisees drive performance in a total sense; not just sales performance, but also profit performance – and profit in relation to their total investment.
The franchisor needs to know how the franchisee is going in a financial sense. The franchisee invests a lot and as an investment profile they will typically be highly concentrated into the specific franchise business. So it is important to the franchisee, who has made a decision to join the franchise system, that they are afforded a focus on how their return is developing overtime.
We would also add that that focus needs to be considering how things are developing overtime in relation to what objectives the franchisee had when they purchased the business, but also recognizing that their objectives can evolve over time as they learn a lot more about the business and their local market. Clearly this means that the franchisor needs to know from the outset what franchisees wanted and their expectations. The franchisor needs to know what the franchisee invested at the outset and how that has evolved over time.
The franchisor also needs to know how performance is tracking then a total sense – encompassing income, expenditure, profit, cash flow and a balance sheet view. Without this focus, and some of the attendant points, a franchisor cannot have a real picture of franchisee profit and returns and therefore the effectiveness and total sustainability of the total franchise system.
A leadership focus on franchisee profit and returns will help drive franchisee performance which, in turn, will help create a great franchisor business (as a by-product) – and a long-term sustainable franchise system.
Best Practice # 2 Up-to-date Franchise Manuals
Franchising is about the transfer of a successful business model and the protection of a valuable brand.
Franchise manuals help formalise aspects of the business model, and thus include important information on how franchisees are to operate the business.
Franchise manuals also help franchisees understand how they are to operate within the franchise system.
Franchise manuals need to be useful and cover operational information that is relevant and practical to franchisees. That information needs to be up-to-date. If it is not up to date then it is in someways worse not having it, it can even be counter-productive or even illegal.
Franchise manuals are often described as the cornerstone of a successful franchise system, and for good reason.
If you’re a franchisor, make sure you have good coverage. Make sure your manuals are useful to franchisees and contain up-to-date information.
Franchisees are investing in your franchise business because they have faith in your business model. Make sure your manuals reflect this, and are valuable to franchisees. If they are, that will help everyone develop a more effective business and total brand.
Best Practice # 3 A Common Chart of Accounts for Franchisees
Franchise systems need a common basis for understanding and comparing franchisee performance.
A common Chart of Accounts is essential for these activities.
A common Chart of Accounts is referring to the practice of having the same account breakdown for all revenue, expense, asset, liability and equity items. This practice should also extend to other financial and non-financial metrics that are relevant to the particular business model.
Then franchisees, and franchisor support staff, have a powerful basis for comparison.
That Chart of Accounts should be very specific across all of the different areas and often include definitions that provide franchisees with direction on how they handle certain items.
Only with a common Chart of Accounts, can a franchisor really have a basis to benchmark franchisee performance, and, truly understand the performance and effectiveness of their unit-level business model.
A common Chart of Accounts is critical to understanding franchisee business performance, and working with franchisees on their business plans.
Franchise Agreements will often reference the existence of a required Chart of Accounts. That Chart of Accounts should then be included within Franchisee Management Manuals and/or related documentation.
Best Practice # 4 Regular Franchisee Satisfaction Surveys
It is important for a franchisor to know how franchisees feel individually and collectively.
This is important because franchisee satisfaction has the power to help build or destroy a franchise system, depending on whether it is positive or negative.
Much should be done throughout the year in personal interactions and otherwise to know where franchisees are at. But nothing focuses attention nor can provide a professional measure, like an independent franchisee satisfaction survey of all franchisees simultaneously.
For most franchise companies we would recommend an annual or biannual franchisee satisfaction survey.
There are many measures within a franchisee sentiment survey, like a franchisee’s intentions to remain or recommend, that should be regarded as critical franchisor KPIs or Key Performance Indicators.
Of course, surveying franchisees and reviewing results are not enough alone. A franchisor also needs to act on the survey, and consider the survey as part of an ongoing development and improvement journey.
That journey should also involve franchisees individually, in groups regionally or as a total network, and the Franchise Advisory Council, if you have one, in considering and improving the franchise on an ongoing basis.