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Why Financial benchmarking is essencial

By Eric Parker, Partner

Are you as franchisor fully aware of the financial health of each of your franchisees and do you have plans in place to maximise their profitability?


If you answered NO you are not alone. Many franchisors are not receiving monthly financial reports from their franchisees and are therefore unable to assist them to become more efficient and ultimately profitable.

benchmark by a financial analysis comparison to other businessesWhat do we mean by benchmarking?

The definition of financial benchmarking is to run a financial analysis and compare the findings to other franchises in order to assess the competitiveness, productivity and efficiency of an outlet. Benchmarking is the process of comparing the performance criteria and business processes of a franchise to other businesses within their trade.

Some ratios that may be benchmarked include average gross profit percentage achieved in a month, labour as a percentage of sales, rent and other expenses as a percentage of sales. By comparing all franchises in a network, the franchisor will be able to establish what the average norms are and identify where franchisees are under performing when compared to the norm.

icuThe Field Service Consultant should use the franchisee’s previous month’s financial reports as the core of his visit and by using benchmarking he/she can point out the areas that need attention. The break even or loss making franchisees should be placed in “Intensive Care”, where they receive concentrated assistance from the support team.

So how do you go about introducing benchmarking into your group?

  1. model financial performance to strive for 1

    Develop a financial reporting template so that all the Income and Expenditure Statements are submitted in a standard format. In some instances we need to take the franchisee’s financial submissions and convert them to the required format.
  2. We then take all the submissions and average them so that we can review the average performance of the group.
  3. From the average obtained we develop the model financial performance that we want all franchisees to strive for. This can be broken down to large, medium and small franchisees to provide for the fact that they are at different stages in their lifecycle as a franchise.

This exercise is of immense value as the franchisor is now equipped to call on the franchisees and add considerable value to their businesses.

So what are the advantages of benchmarking?

franchisee advantagesFrom the franchisee perspective

  • It forces the franchisee to obtain monthly financial reports and fully analyse their business
  • They can compare their performance to their peers and also the goal performance/ratios
  • They can set themselves measurable objectives to achieve
  • They will believe the franchisor is really adding value to their businesses
  • Problems can be picked up at an early stage and rectified

From the Franchisor perspective

  • You are now fully aware of the performance of your franchisee and can help them to maximise profitability. ‘A profitable franchisee is a happy franchisee’
  • You can add value to your franchisees
  • You can isolate problem franchisees and put them into intensive care
  • If you pick up an overall problem in the group e.g. low margins on a high selling item, you can make the necessary changes

We have successfully introduced benchmarking to three large companies with highly successful results. We would be happy to meet with you and discuss how we could assist you to introduce benchmarking into your franchise network. Contact Us