How Doing This Critical Hiring Will Improve Your Franchise

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Many franchise founders (and even multi-unit franchisees) hope to one day sell their businesses to Private capital. PE’s significant interest in the franchise industry is undeniable. Sellers have benefited from the activity of these well-capitalized buyers through additional competition and increased prices. Even in our current market, where valuations have cooled from the soaring prices of late 2021 and early 2022, multiples for large franchise businesses remain strong and often exceed midmarket averages for start-up companies. similar size.

No matter what your long-term goals are, it’s important to maintain a sell-ready position as much as possible. This doesn’t just mean keeping your documentation up-to-date and updating an online data room with up-to-date financial and franchise documentation, that’s a given. More important is having the right finance leader to be a strategic thinking partner to both you as a founder and your franchisees.

This makes you CFO one of the most important roles in your business. It’s also a role that, especially for emerging brands, can be one of the weakest in the organization. Self-managed companies may not be able to afford superior financial management. When private equity arrives later, immaturity in that role specifically lowers buyers’ willingness to pay because of all the downstream impacts that a vacuum in that key position creates in the way the business itself is run.

Today’s franchise market is extremely competitive for new brands. It’s more expensive than ever to launch and create enough visibility to recruit the best franchise candidates. Emerging brands end up locked in costly competition that often leads them to invest heavily in franchise marketing and recruiting, including high-cost external sales channels. There may be little left for the supporting infrastructure, including the finance department.

It’s hard to hire the best financial talent as a small franchisor. Small franchisors may not even have the ability to meaningfully collect and analyze franchisee profit and loss. Without this visibility, the franchisor cannot properly track or support the health of the system. How will your operations team know what to focus on during franchisee training discussions? How can your team create and share reports with franchisees that demonstrate key metrics and impact on profitability?

Related: 4 key functions of a financial director

How a strong CFO can improve your franchise

Key areas where a strong CFO can enhance the value of your business and output options include:

• Strategic thinking partner for the entire management team

• Maintain focus on corporate and unit-level profitability and growth

• Guide the creation of training materials to help franchisees improve their financial acumen and run a more profitable business.

• Financial modeling and scenario planning that ensures resources are invested in the highest ROI initiatives

• Ensure data reliability and create a cadence for collecting and analyzing business financials

• Drive supply chain improvements and better supplier pricing

• Evaluate debt options to finance growth and delay the acquisition of a private equity partner

• Establish loan programs to support franchisee expansion

• Team leadership; develop financial acumen across the business

• Support to the operations team; track operational KPIs to financial impact at both the franchisor and franchisee level

• Work with the operations team to establish a common chart of accounts for franchisees and a support mechanism for ongoing profitability advice.

Sometimes emerging franchisors try to “save money” by subcontracting for this key position. Don’t make this mistake! I recognize that for smaller brands, this is an expensive hire. Find the best talent you can afford and consider the ultimate reward. One strategy is to hire a fractional financial director and supplement that talent with internal administrative support until the business is large enough to comfortably afford a full-time hire.

If you’re positioning your business for an eventual sale to private equity, ironically, the CFO role is most at risk. private equity firms They typically have internal financial resources or external executives that they know and are comfortable with. In the case of a platform, financial planning and reporting functions may already be consolidated. Either way, while the CFO is a key enabling role in helping to create a sales-ready posture and drive greater business value, ironically, it may be the first position to be replaced or eliminated post-acquisition. You may need to get creative with compensation, such as creating a bonus structure in the event of a successful transaction, to recruit the best talent.

Related: 3 Signs It’s Time to Hire a CFO

Key Attributes in Hiring Emerging Franchise CFOs

• Previous experience in senior financial leadership: minimum 5 years

• Strong references, especially as a strategic thinking partner for the founder, senior team and franchisees

• Experience working with private equity, preferably as CFO or VP of Finance for a brand that was sold to private equity or owned by private equity

• Experience working in a bootable environment.

• Franchise or multi-unit experience is a plus

• Accounting experience preferred over finance experience

• Good financial modeling skills.

• Experience in one of the large accounting firms is a plus.

• Ability to build a strong, profit-focused team.

If your franchise system is made up primarily of first-time business owners, make operational-level financial acumen a priority for your finance leader in partnership with your operations leader. A strong CFO can help operations develop tools and training that help franchisees understand the main financial levers of their business and the key activities that improve profitability.

Don’t wait until you’re selling the business to prospective buyers to point out all the low-hanging fruit that you could have caught and monetized yourself by helping franchisees improve their businesses. strong attention to unit level profitability it also signals to franchisees that their profitability is a priority for their management team. This should attract better franchisees in the first place and validate well.

Related: The CFO of the Future (No, they’re not just the “finance guy”)