Five Things Every Franchisee Must Know About Cash Flow
You have seen the headlines “How I built my six-figure business in five easy steps”. This article is not going to take you down that road because that statement is usually just a myth. What is a six-figure business? Often people assume that it means a six-figure profit number – whereas, of course, in most cases it means a six-figure sales or topline number which may or may not have any positive bearing on the bottom line.
The old adage still rings true that ‘sales is for vanity; profit is for sanity, but cash is king!’
If you’re new to business, or contemplating taking a leap into self-employment and entrepreneurship, the commercial secrets of a get-rich-quick entrepreneur are far less important than the financial advice that can be accessed by talking to trusted colleagues, accountants, advisors and the owners of established successful businesses.
Every business owner and franchisee should be fully acquainted with all the elements of their potential cash flow and have a good strong contingency plan should any of those elements fail.
- Cash is King!
Good cash flow stems from proper budgeting and understanding that cash is the lifeblood of your business. It oils the cogs, if you like. If one area of your business requires more cash than anticipated, then you probably need to pull that cash from another area – it’s all about active cash management. Having cash flow held up because of unpaid invoices or siphoning capital out of the business before it can do its job will soon result in everything grinding to a halt. Becoming a franchisee often alleviates some of these issues as quite often a franchise will come with a ‘tailor-made’ cash flow template and much of the planning will have been done by the franchisor.
- Timely paperwork sets a standard
It’s natural to reflect the behaviour of those around you. Just as employees learn from their leaders, customers share the behaviour of their suppliers. If you neglect to send out invoices to your customers, then your customers will be negligent in their payment attitudes. It’s essential that you invoice in a timely and regular fashion because not only will your customers come to appreciate the invoice, but they will respect the clear boundaries that you are setting and, needless to say, replicate that behaviour by paying you in a timely manner.
- Be diligent with collections
We have yet to find any business owner or franchisee that really likes collecting money, however, it is an essential part of your day-to-day credit control, and if you do not have an appropriate collections policy that you diligently follow you are heading towards a cash flow headache. Cash flow is so vital that without a proper policy to ensure its success you’re often risking the livelihood and future success of the business.
- Always remember whose money it is
You are the business owner, so it is your money. An unpaid invoice, for example, is money that is due to you for goods or services that you have sold and delivered and, as such, it is your money and you have a right to it. You should not in any way be intimidated or uncomfortable in asking for that money – it is your money.
Many business owners and franchise owners struggle with this when they begin their operations. It’s often easier to ask for money for someone else than it is for yourself and your business. In this area another adage comes to light, and that is that ‘practice makes perfect’. The more that you do this - the more that you perfect the system - the easier it becomes, and a poor cash flow can be turned into a vibrant situation with just the application of an appropriate and timely reminder call.
- Always have a backup plan
Starting a business or franchise requires a plan – nobody sets off on a journey without an appropriate roadmap and an understanding of where they are going and how they are going to get there. Starting a business, even if it is a franchise, is no different from that trip. You need to know where you’re going and how you will get there, and sometimes there will be a wrong turn in the journey. In a business, that wrong turn can often translate into a cash flow problem which, if unattended, turns into a cash flow nightmare and maybe even worse. It is essential to start with a plan, and to always have a ‘plan B’.
This alternative plan and approach should be well-defined so that if the initial program does not work out, you can immediately implement ‘plan B’ to keep things moving and to avoid any untimely cash flow issues.
Business ownership and entrepreneurship need not be just a dream – with proper planning they can easily become reality, and with that reality goes the understanding that cash is king and cash flow is your business lifeline.
David Banfield is the President of The Interface Financial Group, a position that he has held for over 20 years. He has been instrumental in starting Interface as a franchise opportunity and building it to its current international status. Prior to his involvement with Interface, he worked extensively in the banking, credit and factoring financial service areas.