Qvinci CEO Brad Adams shares tips for making data-driven decisions that promote growth and franchisee success.
KEY TAKEAWAYS:
- Tracking the right data about your franchise system’s unit economics, financial performance and profitability is critical for success as a franchisor.
- Implementing a financial data strategy can help you coach franchisees to become more informed, successful entrepreneurs.
- Automating the data collection and analysis process can free up time to focus on other areas of your business, like supporting franchisees.
As a franchisor, it’s your job to set franchisees up for success – and to continue supporting them as their businesses mature over time.
For franchisors who aren’t tracking the right financial data to leverage their brand’s advantages, though, achieving that goal might be easier said than done. Without evaluating key metrics to understand your franchise system’s unit economics, growth and financial performance, coaching franchisees to become successful entrepreneurs can be challenging, if not impossible, regardless of your level of experience in the franchise space.
So how can franchisors transform their financial data into a strategy that drives profitability? In this article, we’ll explore best practices for using raw numbers to increase unit economics, flag warning signals and turn key performance indicators into system-wide growth that supports franchisee success.
Focusing on the bigger picture
Whether you’re an emerging franchisor or the founder of an established brand, it’s crucial to understand that financial data strategies aren’t just for struggling franchisees. Instead, they can help healthy franchise brands identify potential issues and implement solutions before problems become too large to address.
“We had a large gym company...it’s still there today. They came to us and said, ‘Hey, five of our highest performing franchisees went bankrupt last year,” recalls Brad Adams, CEO of Qvinci, a software platform that provides financial consolidation, business intelligence and data analysis for multi-unit organizations including franchise systems.
To help the company identify the underlying cause of its franchisees’ financial woes and establish a better financial strategy moving forward, Qvinci’s AI-powered software evaluated the bankrupt franchisees’ entire accounting files, rather than their point-of-sale data alone.
The resulting analyses revealed the franchisees had been pushed into bankruptcy after accumulating too much debt – something the franchise brand had missed while manually evaluating a narrower set of data.
“What you have to look at is the homogeneous unit-level data of all your franchises, so you can make informed business decisions and coach your franchise owners to perform,” Adams says.
While the specific KPIs you evaluate as part of your financial data strategy will vary depending on your business and industry, some common metrics include, but aren’t limited to, the following:
- Profit and loss
- Cost of goods sold
- Cost of supplies
- Labor costs
- Rent or lease
- Debt-to-income ratio
- Other expenses and KPIs
Although a “big picture” approach to unit-level financial data is critical for performing a comprehensive business analysis, helping franchisees understand how to utilize their own business data to drive profitability can sometimes prove challenging for franchisors.
“One of the things at Qvinci, that we found, was that most franchise owners don't understand traditional financials,” Adams says.
To simplify the financial evaluation process for franchisees, the company utilizes KPI scorecards with a red-to-green “push-pull paradigm” to evaluate unit-level performance. With their business’s strengths identified in green and pain points highlighted in red, franchisees are asked to home in on red areas to boost unit economics.
“Focus on the red to get the rest. Focus on what matters and get people to think about the five red things that month that they need to work on,” Adams says.
Putting business intelligence to work
Although collecting system-wide data from franchisees at the unit level is a critical part of any financial data strategy, it’s important that your data paints a complete picture of your franchise system – something Adams says requires automation to achieve.
“The only way to get unit-level economics is the data, and the only way to realistically get the data is an automated process,” Adams says, pointing out that software that automatically collects and analyzes data is essential for multi-unit franchise systems.
The quality of your data also matters – especially when it comes to implementing your financial data strategy across the franchise system. At Qvinci, that means focusing on three key pillars developed from the results of a six-month survey of nearly 1,000 franchisors.
Those pillars include the following:
- Data. Collecting, consolidating and mapping systemwide data to a standard chart of accounts is essential for understanding the unit economics of your franchise system.
- Coaching tools. Unit-level data and tools like performance scorecards can help you coach franchisees and support their success as business owners.
- Brand compliance and expansion. Automated compliance reports can ensure that franchisee spending and royalty payments are aligned with the requirements of your franchise agreement. That data can also be used to build models and sell additional units.
Beyond using unit-level data to understand your franchise system’s economic performance, coach franchisees and ensure compliance, it can also be used to competitively position your Franchise Disclosure Document (FDD) by telling a compelling economic story about your brand in your Item 19 financial performance representations.
Implementing an effective financial data strategy
When it comes to developing and improving your brand’s financial data strategy, proper systemwide implementation is critical. For many franchisors, that means utilizing software to streamline and automate the process across every unit.
For brands using Qvinci, Adams says the deployment process normally takes around 30 days, including onboarding, training and setup, starting with a meeting to identify the brand’s key pain points so the software company can determine the best data for its AI-driven platform to track.
Next, the Qvinci team works with franchisors to determine custom KPIs for its software to evaluate, although Adams says the team often recommends that customers use the company’s KPI scorecard, performance dashboard, financial forecaster, cashflow analysis and other basic tools to track unit-level data comprehensively.
“We have all kinds of testing modules in there that will throw up red flags if your balance sheets (or) your numbers don't match,” Adams says.
After linking and syncing the underlying data to each business’s accounting programs, the company builds out a whitelist and trains business coaches who in turn train franchise owners to use the software. Once the training process is complete, franchisors and franchisees can get back to doing what they do best – running their businesses – while the automated software tracks their financial data and evaluates performance across the franchise system.
“Let's keep this simple. … If you overdo it in the beginning, you overwhelm small business owners. I mean, we’re not dealing with Wall Street financiers. We're dealing with small business owners. And they're your real stakeholders,” Adams says.
Final thoughts
As a franchisor, having a strong financial data strategy can help you identify warning signals and solve potential problems in your franchise system before they spiral out of control. Tracking financial data can also provide you with important tools for coaching franchisees and boosting unit economics. By automating the financial data collection and analysis processes, you can spend more time doing what you love best – growing and scaling your business.
Learn more about Qvinci and schedule a demo.
