Financial Benchmarking is a crucial component in accounting for franchise businesses to ensure that optimal performance is sustained across all franchisees. This process also serves the purpose of financial transparency which can be beneficial for public scrutiny, current and potential franchisees, and financial institutions involved in lending funds to franchise businesses. Often, franchise accounting benchmarking is said to benefit only the franchisor, but now, we also look into its benefits for individual franchisees.
What is Franchise Benchmarking?
Franchise Benchmarking is the process of targeting, measuring, and analysing outcomes of collected results from financial (and sometimes non-financial metrics) of individual franchisees. Averages are compiled, and then ranked, for franchisors to easily assess and compare the productivity, efficiency, and overall performance of all franchisees.
Franchise accountants are the most qualified to run this process, as they can interpret the results clearly to guide both franchisor and franchisee towards feasible initiatives to drive improvement across the entire franchise system.
The concept of a franchise business cannot survive without a specific program to assess performance. From birth, to growth, and eventual decline, the proven ‘life cycle’ of a business is a challenge for all business owners. And for business owners to sustain their business and keep their wealth through time, performances must be monitored and any problem must be addressed effectively before escalating. And that is the important role that benchmarking plays.
Benefits for Franchisors:
- A franchise accounting system implemented throughout the entire franchisee network is the best way to start a benchmarking process through sales and profit & balance sheets. Benchmarking allows franchisors to learn about the top performers among their franchisees, and figure out which operational processes and practices work best and what doesn’t. This will also enable franchisors to share key insights to underperforming franchisees, and help them progress.
- Benchmarking is also a great way to develop a performance profile of a franchise business, which can be used to educate potential franchisees on what it’s like to run the business, financials involved, setting budgets, and making business plans and decisions. This can also serve as an additional supporting document when obtaining financing for your franchise business.
- Benchmarking is crucial for overall strategic planning, as it monitors trends for profit margins, costs, productivity, and other franchisor accounting key elements to understand the outcomes of business activities.
Benefits for Franchisees:
- The comparisons derived from benchmarking (a group of franchisees) can help a specific franchisee in identifying realistic goals, as well as learning tips and opportunities to improve their business performance.
- With the results of franchise benchmarking out in the open, it is natural for franchisees to be competitive against each other. This will push them to perform better than their peers in every possible way.
- Benchmarking acts as a reference point for all franchisees, to improve their performance based on the results of the previous benchmarking cycle.
- As benchmarking exposes strong and weak points of a franchise system, franchisees can get all the support that they need from their franchisors, and resolve any financial challenges before they escalate.
If you haven’t started with benchmarking or have yet to optimise your current process, D&V’s Franchise Accountants can help you establish and properly execute a franchise benchmark process that will significantly improve performance visibility and serve as a catalyst for driving improvement throughout the entire system.