Cash cash cash.
It’s at the core of your business whether we want it to be or not.
The one thing we can say about cash for certain is it doesn’t like to stay still.
Cash was designed to move. Be traded and exchanged.
As I’ve talked about in the past…
“One of the things I love about the franchise model if it’s done correctly and it’s the approach which we use when we franchise is to make sure that the business operates in a very cash flow positive methodology.”
The reason the franchise method is great for positive cash flow is the design of the business framework. We tend to prefer our franchise model, where the cash flow for the entire business is controlled centrally by the franchisor. In most franchise models each individual franchisee is responsible for their own invoicing, their payment collections, managing the cash, and then they pass on to the franchisor the fees, the royalties, that are agreed on in the contract.
This can effectively have a significant impact on your business cash flows, if it’s not done correctly. In our approach with our franchise model the end effect of managing the cash flow centrally is that you have reduced your risk significantly. And so in essence, all the cash flow relating to the service delivery of the business comes into your business as the franchisor and then you can take any fees or costs and then you can remit your payment to your franchisees and we prefer to be doing that on a weekly basis or as regular as possible for your franchisees.
So, they also have a very good and stable cash flow model. The other aspect of this approach from a cash flow perspective is that we make it a back to back arrangement. So, the only time that a franchisee will be paid for a service is when we are paid for service. This is how we frame up the arrangement. And so you share the risk and the cash flow risk with your franchisees.
We try to control the risk of not being paid by getting payment up front and not releasing any final product or service requirement to the client until payment has taken place. In this way you reduce non payments or bad debts significantly, but there is an arrangement in place that franchisees are paid when franchisor is paid. And so this is our preferred model. With technology today this is possible where in the past it may have been a bit more complex.
You can create a centralized invoicing payment collection delivery framework which removes this task from your franchisees, which sometimes a lot of them struggle with and that makes it far more efficient and simple for your clients. So, franchising if done correctly, can significantly improve your cash flow and reduce your cash flow risk.