A quick Google search will tell you all you need to know about the potential risks of starting your own business. It’s enough to make a wide-eyed entrepreneur close the tab and never think about a starting company ever again. But while it’s true that roughly 20 percent of small businesses will fail in their first year, franchises are considered a safer investment than going it alone due to the support and access to networks that franchisors offer.
There will always be risks associated with owning a franchise. However, there are many ways to mitigate the risks and set your franchise up for success. Aside from the investment and growth opportunities, one of the biggest benefits that stem from owning a franchise is positive cash flow.
Whether your franchise investment is in hospitality, retail, health & wellness, or security, protecting your cash flow today will ensure a prosperous tomorrow. Here are some of the best ways that you can maximize your cash flow through franchising:
Know the Difference Between Revenue and Cash Flow
It may sound basic, but many business owners get this important information mixed up. Revenue refers to the total amount made on the sales of goods and services. Cash flow refers to the money inflows and outflows of your business. While revenue is a good indicator of your business’s overall health, it is not the same as cash flow. Cash flow lets you know how much gas is in the tank, and how far you are from Empty to Full. Knowing exactly what your finances are and understanding the difference is the cost of entry for running a successful franchise.
Create a Cash Flow Statement
Cash flow statements are a dependable way to prioritize your actions and goals. Your statement should include all expected expenditures and income over a 12-month period: payroll, debt repayments, inventory, and accounts receivable. If you need help getting started, there are many cash flow statement templates available online that simplify the process.
Estimate Potential Profit and Loss
Creating a profit and loss statement is integral to maintaining positive cash flow. Your profit and loss statement tells the story of your business’s revenue, costs, and expenses over a specific period of time. Like a cash flow statement, a profit and loss statement can be conducted over a 12 or 24-month period. Combined, both statements provide a thorough view of your business’s performance. It’s also a direct way to uncover losses that might be hiding in plain sight. These templates are available online as well.
Leverage the Tools Your Franchisor Offers
One of the biggest benefits of owning a franchise is that your business is an already established brand. This gives you the opportunity to leverage the franchisor’s tools and resources, including marketing, research, and data. Some franchises even include inventory and equipment in their franchise fees. This allows you to cut costs in ways you never could as an independent business.
Know When to Hire Outside Help
If you're completely unfamiliar with reading financial statements or uncomfortable developing financial projections, I suggest going through these financial exercises with a trusted accountant. Don't skip this very important piece of due diligence. If the numbers come out as less than ideal, you may find yourself working longer hours than expected with very little in the way of salary or profit to show for it.
Creating positive cash flow is the goal of any business, but it’s no simple task. It may take a little leg work up front, but organizing and creating financial outlines that report financial health will allow you to have a clear and detailed image of your franchise’s overall wellbeing. In the era of Big Data, business intelligence, and analytics, you cannot afford to leave money on the table when you already possess the tools to maximize your success.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.