David Earl, Chief Financial Officer, Stratus Building Solutions.
For U.S. franchise businesses, the role of chief financial officer goes beyond traditional financial oversight. Franchisor CFOs are, of course, instrumental in strategic planning and operational efficiency for the franchisor. However, successful franchisor CFOs also pay attention to and support franchisee success.
Having spent a large portion of my career in Fortune 100 and private equity-backed companies, there was a bit of a learning curve for me to understand first the franchise business model, but more importantly the financial needs of a franchisee.
Private businesses drive financial initiatives through collaboration with and directives to individual departments, which in turn have company-centric goals and targets. In contrast, a franchisor has franchisees who are individual business owners with their own set of goals and direction for their franchise business, some of whom have already had very successful small-business ventures.
So, I took the time to observe and converse with franchisees in order to understand just what types of financial support would be helpful to them. This led to my first initiative, which was to be able to provide comparative financial performance against their peer groups.
Strategic Financial Leadership For Franchisors
A proficient CFO brings extensive financial expertise essential for devising and implementing strategies that bolster profitability.
By developing comprehensive financial models, CFOs can forecast future performance, assess potential risks and recommend initiatives to optimize resources. This strategic foresight enables franchise businesses to navigate market fluctuations and capitalize on growth opportunities.
Operational efficiency is a cornerstone of profitability in franchising. CFOs contribute by streamlining financial processes and integrating advanced technologies. Embracing automation can allow for the optimization of routine tasks, reduction of errors and freeing up resources for more strategic activities.
Obviously, this position in a franchise organization handles similar duties to counterparts in other industries. However, in this unique business model, a CFO goes well beyond the ones and zeros. Don Noble put it best: “Put simply, CFOs help franchisors build fruitful relationships with franchise buyers by financially educating and coaching those buyers.”
Supporting Franchisee Success
The success of individual franchisees directly impacts the overall profitability of the franchise system. CFOs should play a critical role by developing tools and providing coaching that helps franchisees understand the key financial levers in their businesses.
At Stratus Building Solutions, we take pride in helping franchisees understand the micro- and macro-level views of their businesses. Whether advising franchisees on small-business concerns such as unit profitability, EBITDA flow through and the principles of wealth creation, or simply helping franchisees create better forecasts, my team and I are hands-on to promote a franchisee’s success.
By fostering financial literacy among franchisees, CFOs can ensure that each unit operates efficiently, contributing to the system’s overall health. As a CFO, I understand how much trust matters in the franchisor-franchisee relationship, especially when it comes to the financial side of the business. For me, it’s about setting a standard of honesty, transparency and reliability. These are the building blocks that lead to genuine connections between the franchisor and franchisee.
Mitigating Risks For Franchisors And Franchisees
Franchise businesses often face unique financial challenges, including varying performance across units and market volatility. CFOs are tasked with identifying and mitigating these risks through robust financial planning and analysis. They establish key performance indicators to monitor financial health and implement controls to prevent potential issues.
By maintaining a vigilant eye on financial metrics, CFOs can proactively address concerns before they escalate, safeguarding the franchise’s profitability.
The Role Of The CFO
In the U.S. franchise business model, the CFO’s role transcends traditional financial management. Metrics like unit growth and average unit EBITDA are valuable industry benchmarks that help capture the interest of potential franchisees. However, the role of a CFO in the franchise industry goes beyond numbers.
CFOs serve as the bridge between two key stakeholders—the franchisor and the franchisee—both of whom are focused on improving their performance. Understanding and addressing the unique needs of these two groups is a critical skill for any successful franchisor CFO.
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