Growing Your Business

Financial Savvy for Franchises

Posted at November 11, 2014 | By : | Categories : Growing Your Business | 1 Comment

Financial Savvy for Franchises

If you know me, you know I nerd out on financial savvy for business owners.  After seeing the massive effect of ignoring the financial piece in favor of marketing, SEO or just general hustle, I’m pretty obnoxious about preaching the importance of financial savvy for all business owners no matter their size or industry.


That being said, I love it when someone else helps me preach.  I found that in Lonnie Helgerson’s book, Five Pennies: Ten Rules to Successfully Build a Franchise Mega-Brand and Maximize System Profits.


You have to kiss a lot of frogs to find a prince and that appears to hold especially true in franchise literature.  It’s challenging to find a book that’s truly educational without being too light or too pitchy -and when you do, it becomes a real page turner.


Lonnie’s book derives its title from the idea that in a franchise system, along with all the benefits, there must be enough margin in the business itself to sustain both the franchisee and the franchisor.  That’s the 5 pennies – the amount the franchisee pays to the franchisor.  He asserts that it’s the franchisor’s job to ensure that the business is well designed and healthy though to be able to pay those 5 pennies with a smile.


“…without unit profits, there are no pennies available for a franchisor.”

“A franchisor’s wealth and success are byproducts of having wealthy and successful franchises”


The real money for a franchisor doesn’t come from the up front fees – even if they appear large – it’s in the long term relationship (usually 10 years) of running a successful business.  That’s good news for everyone in the franchise relationship.  Everyone is rowing the boat in the same direction – maximum profitability.


If you’re in a franchise or considering joining the ranks, here are 3 action steps you can take to get rowing:


3 Action Steps


1.  Determine the level of interest your franchisor has or will have in your financial success.  Do they view your success as their success?  This will help you determine how you approach the second and third action steps.


2. Look for evidence of how your franchisor shows their level of commitment to your financial success on a day in, day out basis?  Do they help you monitor key data points and percentages?  Do they provide training and coaching?  Do they use a “we’re in this together”  approach or a disciplinary one?  What stories can they tell you of current or former franchisees that they helped walk through difficult times?


3.  This is the most important one – put in place your own systems for financial savvy using both what the franchise has provided and your best practices.  Here’s a great place to get started and see what you have and what you still need.  Fill in what the franchise system doesn’t provide – because it’s ultimately you who’s responsible for your own success.


If you’re looking for more help, either inside or outside a franchise system, feel free to contact us here or invite Emily to speak here

About Emily Chase Smith

I’m an experienced attorney and entrepreneur. With my background in bankruptcy, I’ve seen the end of the business lifecycle and use that knowledge as a lighthouse to help others avoid the rocks. I counsel with entrepreneurs to provide custom solutions to help you get back in the game. You can contact me at (949) 391-6063, Google+ Twitter

  • darryl

    November 17, 2014 at 2:48 pm

    I like this reminder message..

    The real money for a franchisor doesn’t come from the up front fees – even if they appear large – it’s in the long term relationship

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