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Managing Debtors and Summarizing Financing a Franchise (Pt IV)

Date AddedOctober 12, 2009 12:13:28 AM

AuthorRod Nuttall

Category

Continued from Finanching a Franchise, Keeping Records (Pt III) 

DEBTORS

Taking a proactive approach to managing debtors can also help to keep the cash flowing through the business and help to eliminate problems before they become serious issues.

Waiting until a debt becomes overdue before taking action can quickly see a situation deteriorate and the franchisee's cash flow cycle affected. A simple step that can save time and inject cash back into the cycle is to prioritise the debt. In some franchised businesses, categorising customers according to the value of their debt will allow the franchisee to focus on those that owe the most - this way a minority of debtors that generate a majority of receivables can be contacted, potentially leaving the franchisee with more time to run the business to the best of his or her ability.

Also, addressing problems and conflicts head-on can often ease the overall impact to the business. Franchisees shouldn't shy away from chasing debts and must commit time to doing so. Failure to do this can leave the business with a slowing cash flow cycle and will mean that the hard work being put into the franchise by the owner is not being fully translated into a healthy operation.

TAKING STOCK

All businesses have traditionally busy and quiet times. Being aware of these before they hit is vital to effective inventory management. This will help franchisees to avoid tying up cash in stock, prevent a glut of creditors chasing payment during slow periods and will ultimately allow them to minimise the financial impact.

Understanding the activity cycle of the business and continually reviewing it will help to manage seasonal fluctuations. New franchisees should talk to others in the system to gain a broad understanding of what to expect, and should also consult their advisors, such as specialist bankers and accountants to ensure nothing takes them by surprise.

To conclude, many small business owners start out on their own because they have a passion for providing a product or service and franchisees are no different. Owners often have a personal connection to their business and so will naturally concentrate their time and efforts on making their business the best it possibly can be. These are excellent ideals, but some new owners forget that this pursuit of excellence does not stop with the product or service.

Franchising is a popular way for people to take charge of their financial future and essentially be their own boss. The framework provided by the franchisor does give some security and ensures there is a support system available for franchisees to draw upon. However, franchise owners still need to master the skills of effective cash flow management and prudent financial planning in order to prosper.

Doing the research before opening the doors and putting in the time and effort to maintain records, update business plans and consult the balance sheet on a daily basis, are all key factors contributing towards franchising success - owners that do so put themselves in the best position to reap the full rewards of their investment.

To speak with a franchising specialist from the CBA, call Rod Nuttall in Australia on 0420 946 013. 

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