Planning Financially For Your Business
Having found your ideal franchise business, you will be concentrating on that perfect first day launch. However, to ensure a long and successful franchise career, it’s all in the planning.
One of the main advantages of joining a franchise network is that you get the backing of a proven franchisor and can see from past trading history the success of the business model.
While any reputable franchisor will provide you with all of the training and support necessary to run your business confidently, it will be your responsibility to manage and forecast the future development of your franchise. By producing financial forecasts based on your knowledge, you will be in a much strong position to plan your spending.
Your Financial Forecast
An up-to-date, adaptable cash flow forecast is an invaluable tool for keeping your business on the right track. Give it the attention it deserves and it can be relied upon to forewarn you of stormy times ahead, help you achieve steady growth and steer you safely through the coming year.
A comprehensive sales forecast will include projections on cash flow and profits but you’ll need to start with how much you expect to sell and when.
If it is your first year of trading, you will need financial records from the franchisor to assist with the creation of your business plan. However, if you have been operating for at least one year you will know how much you sold/generated in the last 12-month period and that should be the basis of your projections. Using these figures as a guide you can effectively manage your financial budget for the coming year. Starting from that number you need to factor in:
- Trends – did sales rise/fall during certain times of the year?
- Customer knowledge – are your customers happy, are they likely to buy more or less in the year ahead?
- Market knowledge – is demand in your sector rising or falling?
There are additional elements to consider, for example, if you own a retail franchise a product launch could boost your sales or due to service demand you may need to hire an additional member of staff. You should also look at your prices and margins, compared with competitors, in terms of how they could affect sales.
When breaking down your monthly projections, you’ll also have to consider recurring factors. Many businesses have quiet periods – if you own a lawn care franchise, you know that the winter months generally will see a percentage slide in revenues – be sure to include this in your forecast.
Projecting Cash Flow
Sales alone won’t give you a full picture of the health of your business. Unless you are a retail business, the chances are you will wait anywhere from one to three months between confirmation of a sale and a customer making payment on the invoice.
So it’s worth making allowances in cash flow, based on when you expect money to come into the business, set against your own running costs. This will allow you to identify any potential financial pinch points.
Forecasts are only useful is your prepared to act on them, especially in cases where the numbers don't add up.
If you can spot potential problems before they occur, you have bought yourself the time to consider the best course of action. When your forecast shows a cash flow squeeze on the horizon, you can consider a number of options:
- Reduce stock
- Minimise costs
- Maximise sales volume and margins – or slow down growth if that is causing a problem
- Agree extended credit terms from a major supplier for that period
All of these are easily actioned with time to spare are proper planning. By preparing forecasts and making ongoing comparisons with actual sales, you’ll have robust numbers to tell you when the business is exceeding expectations.
Whether you sales are good or bad, be sure to keep an up-to-date record of your financial forecasts and act quickly to keep your head above water.