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Financial Performance Analysis for Franchises: Get Better Insights on All Your Locations

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With locations across the United States, White Castle has become a well-known name in the fast food industry and a true franchising success story. 

Until recently, however, things weren’t so seamless behind the scenes—at least when it came to their financial reporting.  

“We have about 400 restaurants,” Shari Taynor, Senior Accountant for White Castle told Vena.  “Each restaurant had its own individual Excel spreadsheet. As we prepared the files to go out, if we realized ‘Oh, there was a problem with the file,’ we had to redo every [one of the] 400 files.”  

White Castle wasn’t unique in this problem, either. For many franchise businesses, disjointed data and dispersed financial records are just the status quo. 

And without a single source of truth, franchises aren’t just adding to their team’s workload—they’re missing out on opportunities to introduce financial performance analysis across the entire business. 

"In my experience advising franchise businesses, I can tell you that many emerging franchisors and established brands don’t collect all the data required of franchisees as stated in franchise agreements," said Michael Iannuzzi, Partner and Co-Practice Leader, Franchise Industry Practice at Citrin Cooperman.

That’s because their time and resources are tied up with growing the brand and making sure new locations get up and running quickly. 

Even if franchisors are collecting detailed data from their franchisees (like their monthly profit and loss) they may not have the bandwidth internally to review the data, provide key feedback and help set performance targets.  

So how can franchises get past this blocker to get the data and insights they need to unlock their full potential? 

In this article, we'll dig deeper into the unique challenges franchises face in their financial planning, reporting and budgeting. We'll also share how franchises can introduce a common process for financial performance analysis and reporting across all their locations.  

Key Takeaways 

  • Franchises often lack visibility across units, without a common reporting system in place or shared KPIs. This can leave franchisees without valuable performance insights that could help their locations thrive.
  • There are several challenges that make it hard to analyze financial performance across the franchise, including siloed data and a lack of forecasting and scenario modeling.
  • Complete planning software creates a single source of truth giving franchisors and franchisees the insights they need to improve profitability and performance, which leads to happy franchisees that want to buy and open more units.  

The Complexities of Financial Performance Analysis for Franchises 

In any franchise business, there’s a trade happening between franchisors and franchisees. 

While franchisees may run the individual local businesses, franchisors license them more than just a name. They also sell a proven business model, with assistance and insights from experienced advisors. 

For many franchisees, in fact, that’s the main appeal. They can join a business that already has name value and get insights gleaned from experience, rather than starting from the ground up. 

And on the surface at least, both franchisors and franchisees want the same thing from the relationship: profitability. The franchisor wants the franchisee to be as profitable as they can. And if the franchisees are profitable, they'll continue to open more units.  

Except it’s more complex than that. 

That’s because franchisors and franchisees often start out with different views of what profitability actually means. 

"As a franchisor, you want to sell franchises and make your franchisees money. You think if you do those things, you'll be alright," Michael said. "And at the franchisee level, you're looking at cash flow and budgeting projections to make sure that if you're going to cash in your 401k, or take a big loan, you're entering a business that will support you." 

In other words, franchisees want to realize a profit and recoup their investment as soon as possible. And for multi-unit franchisees, that means developing and opening unit after unit until they’ve met the requirements of their franchising agreement—all as quickly as possible. 

But franchisors, at least to start, focus much of their resources on unit sales. Their priority is top-line revenue since they collect a percentage of franchisees’ gross revenue in the form of a royalty. Franchisees, on the other hand, want insight that will increase their bottom-line profits. 

To achieve both these goals, franchisors and franchisees need a shared budgeting process and a common financial reporting system they can easily get insights from. 

Without the right technology to support this, franchisors and franchisees alike have difficulty accessing the type of performance data they need across all levels. 

5 Challenges Getting in the Way of Analyzing Franchise Performance  

These competing needs early on can make it difficult for franchises to set themselves up for success from the start. And the longer they wait to address their reporting challenges, the harder it becomes to make strategic decisions. 

Common challenges when it comes to analyzing financial performance for franchises include: 

1. Siloed Data 

As we saw in the case of White Castle, it’s not uncommon for franchisees to open a new set of accounts in Excel, QuickBooks, or another tool for every new unit that they open. 

But that means every location ends up with standalone financial records and their own system of reporting and budgeting, with no easy way of comparing or sharing data across units. That makes it difficult to analyze performance and glean insights that can benefit the entire business.    

"One of the biggest pieces of advice we give at Citrin Cooperman to franchisors that are starting out is to set up your franchisees on a standard chart of accounts to at least get the baseline going," said Michael. "This way, there is some level of consistency between all units. Multi-unit franchisees also benefit, as they can compare performance between their own locations." 

"With franchises that have been in operation for a long time and already have a few hundred units out there, it's hard to do this retroactively. But some are successful in introducing this change by saying, 'Look, we're going to put this tool in, because we think it will help you make money.'" 

2. Lack of Real-Time Data 

If you’re running a big operation, the time it takes to access each Excel or QuickBooks file and download a P&L, a chart of accounts and your balance sheet is very time consuming.

This is a problem Michael delved into when he presented during Vena’s 2023 Excelerate Summit livestream, “Vena for Franchise by Citrin Cooperman.” 

With this level of effort required just to pull the numbers, it’ll come as no surprise that any data sent up the chain is often outdated before it reaches those higher levels. As a result, that data is essentially useless for making important decisions related to improving performance. 

3. Wasted Resources 

Many franchisees aren’t just relying on manual data extraction—they’re also relying on manual data entry. 

Information is typically coming in from your POS system at your individual locations, but it may or may not be bridging into your general ledger. In that case, you’ll likely have an employee just manually entering sales, cost of goods sold and purchases. 

Now multiply that across multiple units. 

Considering franchises can scale quickly, adding 15 to 20 units a year, the amount of human capital you’d need to bring in all that data manually—keying it into Excel, organizing it, summarizing it and sharing it—is astronomical. 

But with automation in place and a centralized system that tracks data across units, not only would the data be more current, but many of those employees could be tasked with other jobs instead. "Franchises could redeploy those people to really focus on analytics, budgets and projections to help grow the business, as opposed to just running data entry across the system," Michael said.

4. Unclear Performance Metrics 

A set of common key performance indicators (KPIs) can help at both the franchisor and franchisee level, giving franchises a way to measure performance and compare individual units across a range of metrics. When data is disjointed and siloed, though, it’s hard for franchises to identify these common KPIs across the business and implement common indicators of success. 

And that’s antithetical to why business owners choose to go the franchisee route in the first place. 

"People usually get into the franchise world because there are supposed to be common themes and consistencies throughout the system," Michael said. "Outside of cost-of-living differences in certain areas, the units should be producing similar volumes and the expenses should be pretty much in line with fellow franchisees across the system. If things are out of whack, you want to be able to identify and understand why."

Measuring the same KPIs across the entire franchise through a unified system can help you do just that. 

5. Lack of Forecasting and Scenario Modeling 

With siloed data and limited visibility into performance across units, forward-thinking processes like forecasting and scenario modeling are often more difficult for franchises as well—both for multi-unit franchisees and the franchisors who are meant to support them. 

But these forward-looking projections would be immensely helpful on both sides of the franchise equation. 

Franchisors could calculate their run rate based on current expansion plans, plan out new territories and predict when an existing territory will need a field consultant or additional support. 

And franchisees could use tools like this to look ahead and better understand their capital expenditures, utilization rates, hiring needs and ongoing remodeling requirements going forward.  

How To Improve Franchise Performance Analysis and Increase Profitability  

The good news: these challenges aren’t unsurmountable.  

Take White Castle again, for instance. While the fast-food chain may have started with 400 or so separate Excel spreadsheets—one for each of their franchise units—with Vena they were able to turn those into one single template that’s now used by everyone, creating consistency and collaboration across locations.  

“If we need to make a change, we can just make a change to that one template and then it goes to everyone,” Shari Taynor said. 

And that single template used across all locations is what Citrin Cooperman tend to recommend for franchises looking to introduce better financial performance analysis. 

In fact, there are two paths franchises could take, according to Michael: 

Path 1: Establish a Single Source of Truth 

Ideally, franchisors should establish a single source of truth and set all their franchisees up on a common chart of accounts, with common practices for budgeting, reporting and planning. 

That way you can share data easily, establish common KPIs and compare performance between units. And hopefully, you’ll do this with help from automation to save time and effort and provide that data in real time.  

This can help at both the franchisor and franchisee levels, letting them see which units are thriving and why, where costs need to be cut and even which areas might be able to support another location. Franchisors can compare across regions too, to see what’s impacting performance, passing those insights on to franchisees to increase profitability across the board. 

When franchisees have visibility into what's going on with the business, they can compare themselves to their peers and work as a team to see how they can increase profitability, increase revenue and really drive cash flow to the bottom line. And when that happens, the entire system is happy.  

While this is the first route Michael suggests to all his franchise clients, it may be difficult—though not impossible—to do for existing franchises that are deeply rooted in their disjointed data systems. For them, there’s an alternative route they can take.  

Path 2: Determine Shared KPIs 

If a single source of truth seems difficult to achieve, Michael recommends starting with a shared set of KPIs. 

The right performance metrics can let both franchisors and franchisees better understand the business, down to the unit level, and where improvements could be made. 

"In every business, there are probably five to eight key success indicators for that business that are going to be the same across the whole franchise. These can serve as your benchmark," Michael said.

Those KPIs will vary depending on the business itself. A quick service restaurant might look at the cost of goods sold, for instance, or purchases. Rents and payroll may also be key items.  

How Complete Planning Software Can Help 

A complete planning platform can support either of these strategies. By providing a single source of truth and empowering franchises to track performance metrics across all units, it: 

  • Gives franchises better visibility into their performance
  • Creates consistent processes for budgeting and reporting
  • Improves overall profitability 

Whether you introduce complete planning software through your entire franchise from the start or roll it down to franchisees from the franchisor level later, you’ll have the power to produce better forecasting, scenario modeling and revenue planning.  

Take Nando’s as an example. A fast food chain with locations across 30 countries, Nando’s is using Vena’s complete planning software for its financial reporting needs, improving collaboration and enhancing reporting across the franchise as a result. 

“What we use Vena for is actually everything—all the way from our management reporting to our statutory reporting to budgeting, planning and forecasting,” Vanessa Macilwaine, Group Finance Manager for Nando’s, told Vena

The team’s commentary is saved in the platform, letting them look back at analysis and identify trends throughout the year, rather than searching for it manually. And the numbers are sourced in real time, so they’re always accurate. 

“The first thing that my manager said to [the group CEO] was, ‘For the first time ever, I've got 100 percent confidence in these numbers. I know that they agree back to what the markets have submitted. I know they agree back to what's in the system,’” Vanessa added. 

Put Insights Into Action 

Every franchisee wants a profitable business. Franchisors want the same. By creating a single source of truth for financial reporting for all their locations, franchises can start creating the insights they need to enhance performance and make themselves more profitable across the board.

So why not start putting your data to work? That’s where Vena’s complete planning software can help. 

 

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"Citrin Cooperman" is the brand under which Citrin Cooperman & Company, LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. The entities of Citrin Cooperman & Company, LLP and Citrin Cooperman Advisors LLC are independent member firms of the Moore North America, Inc. (MNA) Association, which is itself a regional member of Moore Global Network Limited (MGNL). All the firms associated with MNA are independently owned and managed entities. Their membership in, or association with, MNA should not be construed as constituting or implying any partnership between them. 

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