As any franchise organization grows and develops, it's critical to maintain adequate levels of support, in all forms, to both new and existing franchisees.  While franchise management can offer the best concepts, product lines and brands, without the support of a franchisee action plan to make current franchisees profitable, franchisee success and corporate growth will suffer.  
                                                                            
Whether you're a quick service restaurant or a cleaning business, any type of franchise company must develop a support system to adequately manage franchisee compliance and franchise profitability.  The use of statistics, metrics and meaningful analysis can be the strongest tools to keep franchisees within compliance and on track to build a profitable business.  With the proper means, including a proven equation for success, franchisees can take full ownership of their business' success. 

Compliance

One of the most difficult issues for a growing franchisor is compliance.  It can drain a franchisor's time, energy, money and its entire system if not managed properly.  All franchisees, and especially low functioning ones, need resources that will help them operate within their franchise agreement and focus on a solid growth plan.

For starters, your franchise support staff must be equipped with a list of mandatory compliance items that each franchisee must adhere to and performance areas that are tracked.  These can include specific staffing, training, service, marketing, inventory and management benchmarks.  From the use of approved signage and trademarks to proper hours of operation, all franchisees must be consistently measured against the same standards to build a consistent brand image. 

Monitoring each franchisee's adherence to these standards is a time consuming yet necessary function.  From site visits to regular phone support, significant resources should be deployed in an effort to measure and track compliance and performance. 

What happens if a franchisee doesn't comply?  The franchisor should send notification regarding any non-compliance matter and keep a record of any and all documentation or letters that are issued.  Additionally, provide the franchisee with a tailored action plan including detailed steps to rectify the problem. 

While these matters may be difficult to address, the alternatives can be even more severe.  Unproductive franchisees become dissatisfied with their business investment, provide minimal royalties, give poor validation and drag the entire system down. Franchisees operating out of compliance sometimes become lax and cut corners which can ruin a brand and a business. 

Franchise Metrics and Analysis

A successful franchise system is dependent on both franchisor and franchisee making a fair profit.  Statistics, monthly financial reporting and break even analysis are the most fundamental tools for managing a business.  Franchise organizations that monitor and analyze these measurements month to month, show their franchisees how to be better business people and ultimately more profitable. 

Your franchise system's metric measurement should include:

Targeted gross revenue and gross margins- For example, this should be broken down to the targeted number of customers or receipts per month needed to achieve their set revenue goals.

Fixed expenses- Rent, wages and franchising fees are considered fixed costs because they remain constant rather than varying with the level of sales. Fixed costs do not go up with the increase of sales making your profit margin larger. Failure to generate enough revenue though to cover fixed costs will cause the franchise to operate at a loss.   

Variable cost percentages usually go up in proportion to the number of customer receipts. Tracking costs generates awareness of any extra expenses incurred and promotes greater ability to minimize them. 

Break even analysis- The break-even point is a critical piece of information for both franchisee and franchisor. Based on a franchisees' production, break-even analysis can show what month or year the franchisee will reach their break-even point.

Projections and "What Ifs"- This report shows actual figures vs. "what if" projections. The "what if" calculator allows franchisees to play with their future.  By trying various business combinations, franchisees can adjust what they are currently doing to improve profitability next week, month, quarter, or year.  Using this tool, franchisees can better plan and even make their mistakes in the calculator, instead of in the actual numbers of their business.

Use a monthly financial reporting system to give you accurate profit performance results.  You don't want a quarter to transpire before you find out about profits or losses in your business!

As your franchise organization grows, it becomes a balancing act to sustain growth, keep existing franchisees productive for good validation and retention and treat franchisees consistent with compliance issues.  Maintaining a consistent approach to compliance reduces the opportunity for a disgruntled franchisee to prove that they were treated unfairly.  Equitable treatment of all franchisees helps build a strong system, brand, and reduces litigation.  With proper tools, such as good metrics, reporting and analysis, you can ensure that your franchisees are focused, meeting their mandatory compliance standards and advancing their business and yours.

Sue Bartman is president of FranCompliance, a Jackson, Michigan-based company and provider of FACTSTM, a franchise management system.  FACTS is a combination of tools and services that can help franchise organizations achieve consistency in location openings, compliance procedures, branding, franchisee business management and support.  Contact Sue at 517-782-7544 or visit http://www.francompliance.com/.