More than 800,000 franchise business establishments operate in the U.S. For some entrepreneurs, the business model is attractive: It leverages an existing brand and provides a nearly turnkey business operation. For the franchisor, the business model generates capital in the form of franchise fees, increases brand awareness and reduces certain risks.
However, business history is replete with failed franchises, many of them well-known businesses that started spectacularly but ultimately faced insurmountable financial difficulties. Clearly, making franchising work for both parties is far from simple.
To gain insight into the requirements for success in today’s franchising world, Katie Kuehner-Hebert spoke with Jeff Morris (photo above), CFO of QC Kinetix, a non-surgical regenerative medicine franchisor specializing in the treatment of musculoskeletal conditions. Morris discusses the measures he takes to support the company’s 175 franchisees and keep them focused on profitability.
How do you balance growth for QC Kinetix with unit-level economics, especially in an uncertain economy?
Ensuring the financial health and stability of existing locations is a foundation for sustainable growth and long-term success for the franchisor. We closely monitor key unit-level metrics, including revenue, profitability and operational performance, to identify and address issues within our existing franchise network. We review and evaluate these metrics on a weekly basis. But that doesn’t mean growth of new franchises comes to a complete standstill. Franchisors need to pursue expansion plans that align with their financial infrastructure and operational stability.
For example, at QC Kinetix, we intentionally paused expansion during a phase of rapid growth to focus 100 percent of our attention on ensuring existing operators were profitable and adequately supported. However, as we became confident that those franchisees had a solid foundation and were on track to grow their unit-level profitability, we carefully refocused some of our attention on measured growth. By finding this balance, a franchisor can adapt to economic fluctuations and pave the way for a thriving franchise system.
What financial red flags should CFOs watch for when evaluating franchise expansion plans?
The CFO needs to review high-level metrics but also mine data that is more granular. For example, reviewing KPIs on an “average per location basis” provides important information about success or challenges within the franchise network—information that might be missed when reviewing only top-level metrics.
QC Kinetix incorporates local benchmarking to account for market-specific variability, giving franchisees realistic comparisons relevant to their geographic areas. I also recommend ranking franchise operators into performance quartiles to tailor support effectively. Shifting focus from top-line sales to overall profitability ensures sustainable operations and prevents overextension of resources.
How can finance leaders work cross-functionally with marketing to drive sustainable growth in franchise-based business models?
Finance leaders can collaborate with marketing to set clear KPIs and ensure measurable goals for marketing campaigns. For example, we evaluate the success of brand awareness initiatives by tracking changes in brand perception or the number of leads generated over time.
Collaboration with marketing is especially vital when educating consumers about niche industries, like regenerative medicine. Our marketing must address misconceptions and build trust among consumers. Regular communication between finance and marketing teams ensures accountability and alignment.
“Monthly financial reports comparing unit performance within similar markets can help operators identify opportunities for economic improvement.”
What are the most effective financial support structures to help franchisees build long-term wealth and ensure system-wide stability?
Adequate financial support begins with creating systems that provide franchisees with actionable insights. Monthly financial reports comparing unit performance within similar markets can help operators identify opportunities for economic improvement.
Additionally, fostering knowledge-sharing through franchisee group meetings or mentorship programs helps create collaborative solutions to shared challenges. Encouraging the use of standardized tools, such as bookkeeping services, also facilitates easier tracking of key metrics.
To further ease the operational burden on our franchisees, we are exploring partnerships for services such as payroll and HR support. These partnerships would reduce administrative overhead, create financial consistency and allow franchisees to focus more time on growing their businesses. Continuous improvement in initial training and ongoing education is also crucial, equipping franchisees with the necessary tools and knowledge to succeed in the long term.
Franchise operators often lack traditional finance backgrounds. How can the CFO lead the charge in creating simple, scalable models that promote transparency and profitability?
The CFO should prioritize simplicity in financial processes by providing easy-to-use tools and transparent data reporting. QC Kinetix offers customizable templates for tracking weekly sales and expenditures. Collaboration also plays a key role: CFOs should approach discussions with operators as learning opportunities to address local market nuances and operational challenges.
