Every year, millions of hopeful entrepreneurs enter the world of franchising.
Compared to other business models, buying a franchise is a relatively safe option that can be very lucrative when you have the right strategy.
But for many people in the franchise and enterprise sector, securing and managing finances is a challenge.
Learning how to master the art of cash flow while mitigating inevitable financial stress is crucial for anyone wanting to run a successful franchise business.
So, how do you ensure you don’t make dire financial mistakes that affect the profitability of your franchise?
You can start by reading these 7 practical tips for reducing financial strain and developing a smart, sustainable, and effective approach to cash flow management in your franchise.
Find The Right Franchise
Managing a sustainably lucrative franchise has a lot to do with picking one in the right field for your expertise, temperament, and level of experience. In 2023, some of the most popular business concepts come from the following sectors:
If you choose a franchise that suits your natural skills and career trajectory, managing cash flow will automatically become easier. The more familiar you are with the industry you’re working in, the less financial strain will affect you and the more stress-free it will be to lead your franchise to success.
Prepare To Meet With Banks
Some banks will provide franchise owners with up to 70% of the total set-up costs needed to keep your enterprise afloat. With such significant opportunities for financial relief, you want to go into a situation like this as researched and prepared as possible.
If you apply for funding for your franchise, there are a few key pieces of information to have on hand. Some factors they will look at include:
- Good credit history
- Detailed franchise description and plan
- Personal balance sheet
- Own contribution and collateral (if required)
By showing up to your bank meetings prepared, your chances of obtaining the funds you require will increase dramatically. If your funding is successful, you can progress with your franchise strategy with renewed strength and confidence, thus reducing financial strain.
Create A Positive Company Culture
Nurturing employees and a healthy company culture is important for a number of reasons, last but not least because it fosters a stronger, more consistent cash flow.
To maintain a high level of productivity for your franchise, the people behind it need to feel prioritized and cared for. That means providing them with ample benefits, offering hybrid work solutions, and implementing a strong onboarding and recruitment process.
It also means reinforcing a positive company culture that lets employees know they are respected and appreciated for their contributions to the franchise. Treating employees well isn’t just the right thing to do, it is also the smart thing to do and it will boost retention too.
Speed Up Your Receivables
For the sake of clarity, the term “receivables” refers to money that clients or customers owe you, but you have not paid you yet. By speeding up your receivables, the faster money can flow into your franchises’ accounts and the faster you can manage your cash flow problems.
Tesla, for example, recently managed to curb its massive cash flow crisis by accelerating the pace at which receivables were owed to them. While not a franchise, there are still several lessons to learn from the way Tesla took action. Here are some ways to achieve a similar result:
- Increase deposit requirements – Instead of billing one lump sum at the end of a transaction process, enforce a deposit system to get cash flowing into your accounts sooner rather than later. This also protects you from losing money on last-minute changes.
- Keep an eye on past due accounts – When you have cash flow problems, the last thing you want is for customers to rack up a whole lot of credit.
- Send invoices faster – As soon as a client or vendor has officially made a purchase, send the invoice straight away. This hastens the payment process and ensures your cash flow sees movement as soon as possible.
- Make it easy to pay you – Simple but effective. Provide a wide variety of different payment options and make sure they are always accessible, functional, and easy to operate.
A healthy cash flow consists of delicate timing and pace. Money should go and come back in with a consistent flow of movement. By accelerating your franchise receivables, this balance gets restored.
Cultivate Strong Relationships With Vendors
Working on solidifying the relationships you share with vendors is a great way to not only create a sustainable franchise business model, but also enhance and regulate your cash flow.
Many vendors work with dozens of different clients every day. Often the amounts they charge vary depending on who’s buying. If you make an effort to develop strong relationships with your vendors, you can alleviate some of the strain on your cash flow issues and rake in higher profits over time.
Think Ahead
Thinking ahead and maintaining a bird’s eye view of your franchise business cash flow situation is key to curbing financial stress. Instead of burying your head in the sand like it’s sometimes tempting to do, make a concerted effort to focus on the future and remember that business can be fickle.
Track trends, stay on top of your tax obligations, and ensure that you always know exactly what you have in the bank.
The Takeaway
Cash flow issues are the kryptonite of many franchises around the world. But this doesn’t have to be the case for yours. By taking a firm, straightforward, and sensible approach to franchise financial management, any franchisor can curb the stress that so often comes alongside it.
