Many franchise founders (and even multi-unit franchisees) hope to sooner or later promote their companies to personal fairness. PE’s vital curiosity within the franchise sector is plain. Sellers have benefitted from the exercise of those well-capitalized consumers by way of added deal competitors and rising costs. Even in our present market the place valuations have cooled from the heady costs of late 2021 and early 2022, multiples for nice franchise companies are nonetheless robust and sometimes exceed middle-market averages for similar-sized corporations.

It doesn’t matter what your long-term aims are, it is very important preserve a sale-ready stance as a lot as doable. This does not simply imply protecting your documentation updated and refreshing a web based knowledge room with up to date financials and franchise documentation — that is a given. Extra vital is having the precise finance chief in place to be a strategic thought accomplice each to you because the founder and to your franchisees.

This makes your Chief Monetary Officer some of the vital roles in your corporation. It is also a job that, particularly for rising manufacturers, will be one of many weakest within the group. Bootstrapped corporations could not be capable of afford prime monetary administration. When personal fairness later comes calling, immaturity in that function particularly decreases consumers’ willingness to pay due to all of the downstream impacts a vacuum in that key place creates in how the enterprise itself is managed.

At present’s franchise market is extraordinarily aggressive for brand new manufacturers. It’s costlier than ever to launch and create sufficient visibility to recruit prime franchisee candidates. Rising manufacturers find yourself caught in an costly competitors that usually leads them to make heavy investments in franchise advertising and recruiting, together with high-cost exterior gross sales channels. Little could also be left over for help infrastructure, together with the finance division.

It’s tough to recruit prime finance expertise as a small franchisor. Small franchisors could not even have the capability to gather and meaningfully analyze franchisee P&Ls. With out this visibility, the franchisor cannot correctly monitor or help system well being. How will your operations group know what they need to be centered on throughout franchisee teaching conversations? How can your group create and share studies with franchisees demonstrating key metrics and the impression on profitability?

Associated: 4 Key Features of a Chief Monetary Officer

How a robust CFO can enhance your franchise

Key areas the place a robust CFO can enhance your corporation worth and exit choices embody:

• Strategic thought accomplice for all the administration group

• Keep deal with company and unit-level profitability and development

• Information the creation of coaching supplies to assist franchisees enhance their monetary acumen and handle a extra worthwhile enterprise

• Monetary modeling and situation planning that ensures assets are invested within the highest pay-back initiatives

• Guarantee knowledge reliability and create a cadence for accumulating and analyzing enterprise financials

• Drive provide chain enhancements and higher vendor pricing

• Consider debt choices to fund development and delay taking up a personal fairness accomplice

• Set up lending packages to help franchisee growth

• Staff management; construct monetary acumen throughout the enterprise

• Help for operations group; monitor operational KPIs again to monetary impression at each the franchisor- and franchisee-level

• Work with the operations group to ascertain a typical chart of accounts for franchisees and help mechanism for ongoing profitability teaching

Generally rising franchisors attempt to “get monetary savings” by under-hiring for this key place. Do not make this error! I acknowledge that for smaller manufacturers, that is an costly rent. Discover the easiest expertise you may afford, and take into account the last word payback. One technique is to rent a fractional CFO and complement that expertise with in-house administrative help till the enterprise is massive sufficient to comfortably afford a full-time rent.

If you’re positioning your corporation for an eventual sale to non-public fairness, the CFO function is sarcastically most in danger. PE companies usually both have monetary assets in-house or exterior executives they know and are comfy with. Within the case of a platform, monetary planning and reporting capabilities could already be consolidated. Both method, whereas the CFO is a key enabling function to assist create a sale-ready stance and drive greater enterprise worth, sarcastically, it could be the primary place to get replaced or eradicated post-acquisition. It’s possible you’ll have to get inventive with compensation, corresponding to making a bonus construction within the occasion of a profitable transaction, as a way to recruit one of the best expertise.

Associated: 3 Indicators It is Time to Rent a CFO

Key attributes in rising franchise CFO rent

• Earlier senior finance management expertise — minimal 5 years

• Robust references, particularly as a strategic thought accomplice for the founder, senior group and franchisees

• Expertise working with personal fairness, ideally as CFO or VP of Finance for a model that was offered to non-public fairness or owned by personal fairness

• Expertise working in a startup surroundings

• Franchise or multi-unit expertise is a plus

• Accounting background most popular over finance background

• Good monetary modeling expertise

• Expertise at one of many massive accounting companies is a plus

• Means to construct a robust, profit-focused group

In case your franchise system is primarily first-time enterprise house owners, make monetary acumen on the working degree a precedence in your finance lead in partnership along with your operations lead. A powerful CFO can help operations to develop instruments and training that assist franchisees perceive the foremost monetary levers of their enterprise and key actions that enhance profitability.

Do not wait till you are promoting the enterprise for potential consumers to level out all of the low-hanging fruit that you could possibly have captured and monetized your self by serving to franchisees enhance their companies. Robust consideration to unit-level profitability additionally alerts to franchisees that their profitability is a precedence in your administration group. This could entice higher franchisees within the first place and validate properly.

Associated: The CFO Of The Future (No, They Are Not Simply The “Finance Man”)