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Franchisor Focus: Do You Truly Know How Your Franchisees are Performing?

Published on December 14, 2021

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Read any franchise agreement and you will be sure to find the following language:

“Within forty-five (45) days after the expiration of each quarter and fiscal year of Franchisee, Franchisee shall furnish to Franchisor, in a form approved by Franchisor, a statement of profit and loss for the fiscal year and a balance sheet as of the end of the fiscal year, certified to be true and correct by Franchisee. Franchisee must comply with all accounting, financial and reporting requirements set forth in the Confidential Operations Manual or other similar correspondence.”

Having worked in the franchise industry for a number of years, I can state with a high degree of certainty that certain franchisors both large and small do not enforce this franchisee obligation. Whether it is an unwillingness to follow up on non-responsive franchisees, being occupied with other matters or simple neglect it is an important path to a successful franchise system.

Whether franchisors gather franchisee performance data from key performance indicators (KPI’s), financial statements or both there are key reasons why this information is so critical. When gathering KPI’s the information should include:

  • Sales
  • Sales growth/decline
  • Gross profit dollars and percent
  • Labor costs
  • Expenses
  • Metrics that apply to the specific franchise business model

Gathering KPI’s is the most effective way to measure individual and collective franchisee performance. By acquiring this information monthly, a franchisor can:

  1. Identify which franchisees may require assistance.
  2. Know which franchisees perform well and why.
  3. Become aware of innovative franchisee operating techniques which can be shared among other franchisees.
  4. Enable positive franchise relations by focusing on franchisee performance.
  5. Identify potential weaknesses in the franchise operating model which can corrected and improve the franchise.
  6. Rank franchisee performance which can set goals for other franchisees.

Measuring franchisee performance is an important responsibility of every franchisor. Failing to fulfill this responsibility can impede franchisee success and negatively impact the franchise system and brand.



About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 40 years’ experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million-dollar home healthcare franchise. Ed and Richard Chan are the authors of a new textbook, Franchising Strategies: The Entrepreneurs Guide to Success, to be published on July 1st by Routledge on July 1st. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and has spoken at a number of venues including the International Franchise Expo and Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at [email protected].

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