A thriving business is a sign of having good financial management strategies. When a company is able to reproduce its success over and over again through a franchise, you know they have a uniquely effective approach to business operations. They have balanced growth with stability and mastered the art of financial management.
What does that look like on the inside, though? What can enterprises on the rise learn from existing franchises to spur greater growth while reducing financial risk?
In this article, we will uncover several of the key practices that drive franchise profitability. From proper cash flow management to investing in people development to strategic reinvestment and more, the takeaways can help you navigate the complexities of financial planning. That way, you can keep your business competitive, resilient, and on an upward trajectory, no matter what economic environment you’re operating within.
1. Cash Flow Management, Bulk Purchases, and Diversifying Revenue
The amount of money you have as a business is only part of the equation. The way you receive money and the consistency of that cash flow are also critical aspects of staying afloat over time. This is an area that many franchises figure out at maximum efficiency. They develop systems that generate revenue at maximum profit margins. These keep that precious cash flowing through sales as well as minimal costs.
Subway’s fresh supply chain is a great example of the latter. As a food retailer, the Subway franchise doesn’t have the luxury of stocking excessive amounts of inventory at any given moment. And yet, bulk pricing is a classic way to make more affordable financial business decisions.
The restaurant chain addressed this inconsistency by establishing a series of franchise-owned Independent Purchasing Cooperatives (IPCs). These are non-profit organizations that work to find the most sustainable and efficient way to keep fresh inventory flowing to all of the Subway stores. Some of this comes through locally sourced products, which reduces food miles. Others are bulk purchases that benefit multiple stores.
How Other Franchises Succeeding in Financial Management
McDonalds is another example of a company that has mastered cash flow. In this case, the emphasis isn’t bulk purchasing (although the restaurant chain and Subway competitor does do that, too). McDonalds is also famous for maximizing the diversity of its franchise’s revenue streams.
Along with earning money from sales and franchising fees, the company also leverages its global network to build lucrative brand partnerships. It is also known for being one of the largest land-owning organizations on the planet. McDonald’s around the world collectively own around 50,000 acres of land — an impressive number (although it doesn’t hold a candle to other groups, like Bill Gates or the Catholic Church). While land doesn’t equate directly to cash flow, it does hold value and can make it easier for franchise owners to access loans and borrow cash.
Leveraging bulk purchases, investing in supplier relations, and diversifying revenue streams are all ways to expand and enhance the quality of your cash flow. They give you options to maintain not just quantity but consistency as an organization and open the door for future initiatives without introducing too much risk in the process.
2. Investing in People Development
People are more than financial concerns — but that doesn’t mean they don’t have an impact on your company coffers. For most accounting calculations, humans are an expense. Things like payroll, benefits, equipment, and office-related overhead all factor into maintaining human workers on staff.
However, successful franchisers know that the human angle is the beating heart and soul of a successful operation — and that hiring good people directly impacts a top financial strategy. When you staff your business thoughtfully and you’re willing to invest more money in better talent, it can lead to exponential success.
Serial entrepreneur and franchisor of StretchMed Brian Cook shared some insightful thoughts with me on the impact that investing in people development can have on a company’s financial strategy. “Wealth creation is the direct correlation of your ability to develop people,” Cook explained. “If you hire a not great manager, you’re going to get not great results. Instead, invest in hiring the right managers and training to develop a strong team. Look for individuals with growth potential and provide clear advancement paths within your organization.”
This concept extends across all parts of the org chart — but especially leadership. Denise Triba of Ingenovis Health talent solutions points out, “By investing in leaders, HR helps improve frontline productivity, efficiency and retention all of which can contribute to revenue growth.”
Quality leaders are more than an investment in a nebulous “better business” mindset. They directly translate to the frontline growth of a company. Franchises know this more than most because they are geographically scattered and often independently operated. However, the lesson shouldn’t be lost on smaller operations. Every time you hire in your business, consider the long-term financial impact of the job position and each candidate you consider. Make sure you’re setting the stage for exceptional success.
3. Strategic Reinvestment
In his breakdown on investing in people development, Brian Cook also spoke to the concept of investing strategically in your business. “If you open a franchise, it’s profitable, and you have plenty of customers, you can open another and another and another,” he elaborated. “So don’t hire down; hire a high-level ops manager — someone who can take these businesses and triple or even 10x last year’s income. Choose someone you trust to handle everything.”
He ends with the easy-to-ignore advice, “You don’t want to be managing early-stage employees yourself; you want to manage a manager.”
This concept of a willingness to invest in people solutions should be repurposed across a business. When you have resources available — be they people, cash, opportunities, or other assets — consider how much of them should be reinvested in strategic areas of growth.
Reinvestment is a powerful way to maintain financial success over time. It paves the way for future opportunities and gives you the fiscal depth required to make bigger leaps of growth and take more significant risks when the time comes.
4. Cost Control and Scalable Systems
When you operate on a franchise level, you must establish strict structures for certain areas of business. At the same time, you must allow for a certain degree of personalization and adaptation on the part of each franchisee to make the most of each situation.
While the latter can create synergistic stories of success, the financial success of the former must always be in place first. Building the structures required to control costs and operational procedures can often create a blueprint for consistent success across a franchise.
Dominos is an example of how effective end-to-end cost controls can work as a financial strategy. The pizza chain has perfected its franchise operations by standardizing processes for business operations. This enables a degree of predictability that makes it possible to strictly control everything from the cost of ingredients to labor and marketing.
5. Communication as a Financial Advantage
While operational procedures on a franchise level are important, the independent ability to expand and build on scalable systems is also vital. For instance, M&G Pizza Enterprises operates as a subfranchise of the Domino’s Pizza franchise.
M&G expanded rapidly but found that the sudden ballooning of its franchise network started creating inefficiencies. Poor communication was particularly costly, as it negatively impacted employee hours, food waste, and support between franchises. The solution was the introduction of Jostle intranet across their entire franchise network. This brought 650 employees together in an informed and connected form of communication that improved operations and streamlined communication. It brought the entire network of franchises closer together and helped them exchange key data in real-time.
In the end, the Jostle intranet initiative was more than a communications solution. M&G founder and CEO Brent Medders also connected it to the concept of investing in people (see tip 2). Medders said, “We know our success is determined by people—not processes or procedures. The Jostle intranet has enabled us to dramatically impact our culture by reinforcing team member involvement and awareness. This focus directly translates into real ROI; and not only for the company, but for our team members too.”
Using Franchises to Find the Right Financial Strategies
Successful businesses are built on more than financial acumen. Nevertheless, observing the financial strategies of the prosperous is an excellent way to glean insights to build your own company. Franchises are particularly suited to financial business education, as they can point to repeat success in multiple circumstances and situations.
Use the examples above to discover where your business’s operations and activities are hampering or helping your finances. From investing in developing and connecting your staff to improving cash flow management, strategically reinvesting, and establishing scalable cost control systems, make sure you’re building the right business infrastructure to enable your business to take the next step, whether that is leaving the startup stage, opening another office, or starting a franchise of your own.
