Over 800,000 franchise business facilities operate in the US for some entrepreneurs. The business model is attractive. It leverages existing brands and provides almost turnkey business operations. For franchisors, the business model generates capital in the form of franchise fees, raises brand awareness and reduces certain risks.
But business history is full of failed franchises. Many of them are filled with many of the well-known businesses that have started brilliantly but ultimately faced financial difficulties. Clearly, franchise work between the parties is not simple.
To gain insights on Requirements for success in today's franchise world, Katie Kuener Hebert spoke with Jeff Morris (pictured above), CFO of QC Kinetix, a non-surgical regenerative medicine franchisor specializing in the treatment of musculoskeletal conditions. Morris discusses the measures he is taking to support the company's 175 franchisees and keep his focus on profitability.
How do you balance the growth and unit-level economics balance of QC Kinetix, especially in an uncertain economy?
Ensuring the financial health and stability of existing locations is the foundation for sustainable growth and long-term success for franchisees. Carefully monitor key unit-level metrics such as revenue, profitability, and operational performance to identify and address issues within your existing franchise network. We review and rate these metrics weekly. However, that doesn't mean that new franchises will stop growing completely. Franchisors should pursue expansion plans that are consistent with financial infrastructure and operational stability.
For example, QC Kinetix intentionally paused expansion at a rapid growth stage to pay attention to ensuring existing operators are profitable and properly supported. However, they were sure that these franchisees had a solid foundation and were on track to increase unit-level profitability, so they called attention to measured growth. Finding this balance allows franchisers to adapt to economic fluctuations and pave the way for a thriving franchise system.
What financial red flags should CFOs monitor when evaluating their franchise expansion plans?
CFOs need to see high-level metrics, but they also need to mine more detailed data. For example, reviewing KPIs with “average by location” provides important information about success or challenges within the franchise network.
QC Kinetix incorporates local benchmarks to account for market-specific variability, providing realistic comparisons for franchisees related to geographical areas. It is also recommended that franchise operators rank performance quartiles to effectively coordinate support. Changing the focus from topline sales to overall profitability ensures sustainable operations and prevents resource overscaling.
How can financial leaders work professionally with marketing to promote the sustainable growth of their franchise-based business models?
Finance leaders can work with marketing to set clear KPIs and ensure measurable goals for their marketing campaigns. For example, assess the success of a brand awareness initiative by tracking the number of leads generated over time and the changes in brand awareness.
Collaboration with marketing is especially important when educating consumers about niche industries like regenerative medicine. Our marketing needs to address misconceptions and build trust among consumers. Regular communication between the financial and marketing teams ensures accountability and consistency.
“Monthly financial reports comparing the performance of units within similar markets help operators identify opportunities for economic improvement.”
What is the most effective financial support structure that helps franchisees build long-term wealth and ensure overall system stability?
Appropriate financial support begins with creating a system that provides actionable insights to franchisees. Monthly financial reports comparing the performance of units within a similar market can help operators identify opportunities for economic improvement.
Additionally, promoting knowledge sharing through franchisee group meetings and mentorship programs can help create collaborative solutions to shared challenges. Encouraging the use of standardized tools such as bookkeeping services also facilitates easy tracking of key metrics.
To further facilitate the operational burden of franchisees, we are looking for partnerships in services such as payroll and HR support. These partnerships reduce administrative overhead, create economic consistency, and allow franchisees to focus more time on business growth. Continuing improvements in initial training and continuous education are also important, providing the tools and knowledge necessary for franchisees to succeed in the long term.
Franchise operators often lack traditional financial backgrounds. How can CFOs lead charging when creating simple, scalable models that promote transparency and profitability?
CFOs should prioritize the simplicity of their financial processes by providing easy-to-use tools and transparent data reports. QC Kinetix offers customizable templates to track weekly sales and spending. Collaboration also plays an important role. CFOs should approach discussions with operators as learning opportunities to address local market nuances and operational challenges.
