Managing In A Downturn

Are we heading for recession? What if house prices fall? Are interest rates going up? There are record levels of consumer debt, and speculation about a slowdown in the economy is gathering pace.

Whatever the current economic climate, the importance of keeping control of your own, and franchisees' finances should not be underestimated.

Clearly, everlasting economic growth does not exist and planning ahead is good management practice. This is where the strength of franchising comes into its own - most franchisees would not be looking ahead to ensure that their business is in good shape in case of a downturn.

As franchisors, you will need to help them concentrate on these important issues. Building cash reserves will ensure that the business has the resources to offset a drop in income - it may however slow down expansion and franchisors need to help their franchisees to manage the demands of growth against the need for continued investment.

Looking at overheads seems obvious - but many small businesses just don't do this, or don't do it soon enough. You are in a position to benchmark your franchisees, and help them to consider how their business stacks up against their peer group.

Building value by ensuring the product or service offered is different to that of your competitors is important - excellent customer service builds loyalty.

If your business deals with stock holdings - help your franchisees to achieve greater efficiency. Are your own systems robust and effective?

If the economy is slowing, now is a good time to go back to the customer data already held about customers and past customers. Re-establish contact with dormant accounts or old leads. Send out information about the business, its goods and services, highlight any USPs your business has.

There are various financial issues to consider in a downturn - as usual, cash is the key here. Customers may delay payment - do your franchisees have the financial stability to survive if this happens? Managing overheads and identifying savings seems obvious - is it being done? How much are franchisees taking out of the business - do they need to consider their spending levels? Are they managing their banking facilities well - going overdrawn without agreement or exceeding limits can be costly.

Consider how IT is used in the business - can it be used to further cut costs and improve efficiency - what are your best franchisees doing that the others can learn from?

It is always vital to keep a close check on how much money the business is owed and whether franchisees are keeping on top of invoicing, chasing, credit checks etc. if they are involved in doing this themselves. Is the franchisee very dependent on a small number of large customers - this could lead to major problems if one of these fails, owing considerable sums.

Are your franchisees working well with their bank? These are the problem areas - things which can lead to a breakdown in the relationship:

  • Not supplying agreed information on time
  • Failing to make loan repayments
  • Repeatedly exceeding overdraft limits
  • Unexpected or persistent trading at a loss
  • Not using facilities for purpose agreed (new boat, cars or holidays!)

Look at your own requirements as a franchisor too - work with your bank. We deal with a wide range of franchisors, from fairly small businesses setting out on the franchise route, to major corporates. Regardless of size, it is important to have a clear view of where the business is going, what are your aims for expansion. How much are you going to need to spend to achieve that? How do you attract the best franchisees, inspire them to achieve success and move on the underperforming ones? Have you got the right management and support team in place?

The overall message is, whatever the state of the economy, get the basics right to encourage and foster success.