For the vast majority of franchisees an extra $1,000 a month in net income, or more owner’s salary, would make a huge difference.
At BKE we see Net Income as a percentage of revenues ranging from a negative % to 10% for the majority of our clients. We understand that to really get the picture for a franchisee, you then have to add back an owner’s salary to Net Income to understand a truer picture. Taking this into account, we do see a wide variation of performance by franchisees within a franchise concept. But, in all cases who would not want an extra $1,000 a month.
Left to good luck, we know driving more revenue doing it the same way every month can help either increase the net income or produce more salary for the owner. But unfortunately, revenues tend to flatten out on a month by month basis and most of us cannot rely on good luck.
So what should a franchisee do?
Manage to the details. They really do matter! Statistics say those that manage their financials over a period of time tend to drive 10 – 20% better results financially. But this means managing and asking the question of “what can I do better?” and then executing against the plan. And, this is where the details really do matter.
Here are some data points:
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Between 20 and 30% of the expenses per month for a franchise are general in nature. Things like insurance, utilities, internet, phones, meals and entertainment, mileage, travel, office supplies, dues and fees, and so forth. These all tend to be looked at as “fixed” costs that they need and cannot be changed. Is this really true?
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Non-franchise fee marketing expenses which could have a direct correlation to driving revenues are almost always less than utilities, travel, phone, and office supplies. Is this right or can more spend help drive revenues? Or should no spend occur at all?
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Cost of goods sold tends to be above the target and plan for a franchise. While there is a natural variation based on the franchise model, 50% cogs seems to be a pretty consistent answer when asked what is your cogs target. Unfortunately, these targets always seem to be struggles for a good portion of the franchisees. Is this a pricing issue, an estimating issue, a cost issue of the labor to do work, or the supplies required? Can any of it be reimagined and changed?
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Across our client base, payroll/subcontracting tends to have the widest variation in expenditures. We see franchisees with the same revenues have significantly different payrolls within the same franchisee concept. Is one overpaying, is it the labor market, or is something strategically different are all great questions to ask.
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Pricing is always a place to look and we know the flexibility to price differently really depends on the franchise brand. But sometimes a 1% change upwards can make a huge difference to the bottom line in a given month and sometimes if your costs are really fixed a 25% discount to get any revenues helps in a big way in any given month. Are your franchisees asking these questions and changing their approach based on their performance?
Understanding each of these details above, asking questions, and making something change will make a difference.
In any given month to increase net income or an owner’s salary by $1,000 on a hypothetical client making $50,000 in revenue per month and $0 net income would require less than a 1% revenue increase and a 1.5% cost saving in any of the expenses inside the system. That’s it!
The question really is do your franchisee have these details, are they asking these questions, and are they willing to look at changing so they can potentially add that $1000 a month increase to their performance
But to do that you need good books …..
Thousands of owners, just like you, with income statements, balance sheets, detailed transaction reports, variance reporting, 1099 filings, and more.
We do all of this, through industry-specific professionals, strong customer support, and the BKE insight online portal, providing you with access to your critical financial information 24/7.
On average, we save our clients 12 to 14 hours a month, so they can spend more time focusing on their business and families. We also partner with clients on bookkeeping catch up, so they can get out of the procrastination cycle for good.
Read to learn more? Text Books to (720) 213-8040 to schedule an appointment