Cash flow problems are not always caused by a lack of revenue. In many cases, franchisees have completed the work, sent the invoice and simply have not collected the money yet.

Improving accounts receivable can be one of the simplest ways to strengthen franchisee performance. Automated collections, faster payments and better visibility into outstanding invoices help owners spend less time managing paperwork and more time focusing on customers, sales and growth.

Strong Sales Do Not Always Mean Strong Cash Flow

More revenue is usually the goal, but cash flow problems can still happen even if sales are strong. The missing piece is often how quickly franchisees collect payment for the work they've already completed.

Keith Levenson, the “Grand Poobah” of accounts receivable automation platform Biller Genie, recently joined GoodSpark Franchise Growth Accelerator CEO Charles Internicola and Chief Strategy Officer Nick Powills on a webinar to discuss franchisee profitability and cash flow.

“Cash flow is king,” Levenson said. “We all want to have profitable franchisees. To do that, they need to be able to get the money in for the products and services they're selling.”

The work may be completed and the invoice may be sent, but the business does not benefit until payment is received. Delayed collections can create unnecessary financial pressure even for otherwise successful franchisees.

Remove Administrative Burdens From Franchisees

Many franchise owners come from corporate careers and have limited experience managing invoicing, collections and bookkeeping. That often leads owners to spend time chasing payments, reconciling invoices and handling administrative tasks that do not directly generate revenue. Every hour spent managing collections is time not spent serving customers, building relationships or growing the business.

“Sometimes, they just have never been exposed to these elements,” Levenson said. “If you save them 20 minutes a day, how many more phone calls can they make? How many more sales can they make? There's a lot of opportunity to automate some of these pieces that we're not doing right now.”

Create Visibility Into Accounts Receivable

One of the challenges franchisors face is understanding why certain franchisees are experiencing cash flow problems. A franchisee may report financial stress, but without visibility into accounts receivable, the real issue may be a growing number of unpaid invoices.

“You've got visibility downstream,” Levenson said. “Now you've got visibility into what's really happening on the AR side of the business. That franchisee might be saying, ‘Look, I've got no cash flow, I've got no cash in the bank, I can't pay payroll.’ And he's got 90 days overdue invoicing, and you have no idea, so this gives you a lot of visibility there.”

That visibility gives franchisors better information when coaching franchisees. Rather than focusing solely on revenue performance, brands can help owners address overdue invoices, improve payment collection habits and identify operational issues that may be affecting cash flow.

Look for Small Wins That Improve Profitability

Major changes aren’t always needed to improve franchisee profitability. Sometimes, small financial changes can have a big impact on the bottom line.

“A couple of hundred dollars might sound like a lot, but it's really not when you think about the savings that you're getting from even just passing on that credit card surcharge or fee you have,” Levenson said. “You’re using QuickBooks as your processing tool, you're paying at least 3%, and QuickBooks does not allow you to pass that charge on to your client, so you have to eat it. If you take that 3% and move it off your books, you get 100% of the dollars coming in. You are actually making a 6% royalty on $100 as opposed to $97.” 

Recovering a few percentage points can make a significant difference in overall financial performance for franchise owners. 

Focus on Existing Franchisees, Not Just New Growth

As franchise development activity has become more challenging, many brands are spending more time looking inward at how they can support existing franchisees. Rather than concentrating exclusively on signing new franchisees, successful franchisors are looking for ways to strengthen unit-level performance. 

“We're actually seeing a lot of brands that are really hyper-focused on this right now,” Levenson said. “Franchisors are really looking at it and saying, ‘How can I help? Where are the pieces of this puzzle?’ We're starting to see franchise systems, especially, looking at the bottom line, saying, ‘How do I change?’”

Better cash flow, stronger profitability and healthier franchisees ultimately create stronger validation and a more attractive opportunity for future candidates.

Healthy Cash Flow Creates Healthier Franchise Systems

Accounts receivable may not be the most talked-about area of franchise operations, but it can have a significant impact on franchisee success.

Helping franchisees collect payments faster, reduce administrative work and gain better financial visibility can strengthen businesses across the network. Those improvements can lead to stronger unit economics, healthier royalty streams and more sustainable growth for the brand as a whole.

Watch the webinar above or on YouTube.

For more information on GoodSpark and its franchise development services, visit https://www.goodsparkfranchise.com/.